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Japanese bonds

finish lower

TOKYO: Key 10-year Japanese government bond futures rebounded from early lows in response to a recovery in the medium-term cash market but they ended below the previous day's close in Tokyo on Friday, traders said.

Market sentiment weakened after a dip below a key support of 118.50 in the morning on heavy hedge-related sales led by dealers and possible sales by city banks and US hedge funds.

But the market climbed back after confirming a key support about 118.20. The overall mood brightened in the afternoon, reflecting buying in medium-term cash bonds as straight bonds issued by an electric power firm were well-absorbed, they said.

By the close, the key futures recovered to 118.41 after falling as low as 118.22. They peaked at 118.67, with volume of 51,506 contracts. The futures closed at 118.66 on Thursday.

A trader at a trust bank said the market became reluctant about selling actively after the key futures fell back to around 118.20-30, the level where the upward trend, which pushed them above 120, began after the Bank of Japan released its "tankan" survey on March 1.

"The market looked oversold after sinking below 118.30," the trust bank trader said. "Recovery in the medium-term cash market also helped improve overall mood."

Chugoku Electric Power Co launched 50 billion yen worth of 2.4 percent straight bonds maturing in April 2001.

"The terms of (Chugoku's) straight bonds were not great, but they were well-absorbed. Looking at this, it seems that demand by investors is still strong," a brokerage trader said.

But some operators are worried about oversupply ahead of the possible launch of giant straight bonds by Tokyo Electric Power Co Inc next week, traders said.

Underwriting sources said they expect the utility firm to issue about 150 billion yen worth of 12-year bonds possibly on Tuesday depending on the climate of the market.

Traders said lingering speculation that the Bank of Japan may end its current credit policy of guiding the overnight rate below the discount rate of 0.50 percent continued to be a major factor capping the upper side of the JGB market.

A senior BOJ official told Reuters on Friday that the BOJ will keep its current easy credit stance in the money market after the new bank reserves reporting period begins on Tuesday, but the JGB market ignored the news.

The key 182nd 10-year bond stood at 3.250 percent, up 0.020 from Thursday, and was moving in a range of 3.225 to 3.270.-Reuter