JGB futures hit 2-year high on U.S. jobs, Europe woes

By Rika Otsuka

TOKYO (BestGrowthStock) – Japanese government bond futures hit their highest in more than two years on Monday, as worries about European debt problems broadened to encompass Hungary and after disappointing U.S. jobs data.

The five-year JGB yield extended its slide, striking a seven-year low, as banks kept pouring funds into the midterm sector.

Investors rushed to cut risk assets and sought the safety of government debt as fears of a Hungarian debt crisis battered the euro and reignited concerns that more Eastern European nations could reveal financial frailties.

However, Hungary’s government said on Saturday it aimed to meet this year’s budget deficit target and described talk of a debt crisis as “exaggerated.

Job growth in the U.S. private sector unexpectedly slowed sharply in May, casting doubt on the strength of the recovery in the world’s biggest economy.

“Market players bought JGB futures as they were surprised about the financial situation in Hungary and the unexpected weakness in U.S. employment data,” said Chotaro Morita, head of Japan fixed-income strategy research at Barclays Capital.

June 10-year JGB futures were up 0.32 point at 140.97 after jumping as high as 141.02, their highest since March 2008 — as stocks dropped and after Treasuries rallied on the Hungary and U.S. jobs data news.

The benchmark 10-year yield slid 3.5 basis points to 1.230 percent, falling toward its May trough of 1.190 percent, which was its lowest since early December.

Investors are also picking up JGBs now that Naoto Kan, a fiscal conservative, is set to be the country’s next prime minister. Kan has advocated capping the amount of new JGB issuance.

“The JGB market is looking to Kan as a symbol of fiscal restructuring,” said Morita, though he added that the government would have moved toward fiscal reform even if there were no change in leadership, given the European debt crisis.

The five-year yield fell 2 basis points to 0.365 percent, its lowest since August 2003. The midterm sector has been drawing hefty demand from Japanese banks.

One reason for the rally in five-year notes is that the amount of deposits parked at banks is far greater than the amount of loans they are extending, meaning domestic financial institutions have surplus cash they can allocate to JGB investment, analysts said.

The 20-year yield dropped 3.0 basis points to 1.975 percent.

Tokyo’s Nikkei stock average had plunged 4 percent by midday.

Treasuries soared on Friday after the Labor Department reported that 431,000 jobs were created in May, fewer than investors were expecting, and only 41,000 of those were private sector jobs.

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(Reporting by Rika Otsuka; Editing by Chris Gallagher)

JGB futures hit 2-year high on U.S. jobs, Europe woes