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JGB futures end

higher after

most gains shed

TOKYO: Japanese government bond (JGB) futures held on to some gains to close higher.

However, most early gains were erased by dealer position adjustment after the Bank of Japan BOJ might follow the Bundesbank in cutting its discount rate had cheered yen bonds earlier this week.

"Trading in the afternoon session was firmly limited to position adjustment and hedge selling," said a dealer at a securities house.

The key December futures closed at 116.70, up 0.21 from their Thursday closes. Turnover was 57,814 contracts.

The December contract dipped to as low as 116.47 from the day's high of 117.11 marked on the rally at the opening.

Dealers said speculation that the BOJ may cut its discount rate as part of a coordinated action with the Bundesbank revived after the German central bank decided to slash its official interest rates on Thursday, dealers said.

The German bank chopped the discount rate to 3.5 percent and the Lombard rate to 5.5 percent.

Although the BOJ did not change its credit stance today, dealers' hopes of a rate cut remained in the market, keeping the bottom of the bond market solid, they said.

"Even if the BOJ does not cut its rate soon, hopes remain that the bank could make a move in September when the BOJ releases its quarterly tankan survey," the dealer said.

The December futures are likely to be supported at around 116.50 for the time being, dealers said.

In the cash bond market, vigorous buying continued in the medium-term securities. Investors were still sidelined in the longer maturities, they said.

"Prices in the medium-term zone jumped at the start of the day," said another dealer, adding that some investors appeared to take profits later.

The benchmark 174th 10-year government bonds yielded 3.165 percent at 0754 GMT, against its 3.205 percent closing on Thursday. Yields ranged from 3.140 percent to 3.200 percent.

Dealers said the topside of the December futures was capped because a large amount of sales emerged from 117.11 to 117.20. Trading ranges of the December futures are likely to be limited between 116.00 and 117.00 for a while, they said.-Reuter