JGB futures pull back from 7-yr high on profit-taking

* JGBs dip on profit-taking before weekend

* Caution ahead of U.S. jobs data also caps JGBs

* Losses limited as sentiment remains bullish

* Two-way flows seen,investors jostle at start of new quarter

By Shinichi Saoshiro

TOKYO, July 2 (BestGrowthStock) – Japanese government bond futures
dipped on Friday, with the previous day’s surge to a seven-year
high inviting profit-taking by investors before the weekend.

A wait-and-see mood also prevailed ahead of closely watched
U.S. employment data due later on Friday, with short-term
investors wary of adding to long positions in futures before the
release.

Following a string of downbeat U.S. indicators recently the
data is being eyed to see if it will further enhance the notion
that the global economic recovery is petering out.

September 10-year futures (2JGBv1: ) fell 0.10 point to 141.78,
pulling away from a seven-year high of 141.95 struck the previous
day.

The dip on Friday came amid a long running rally in JGBs,
which saw the benchmark 10-year yield slide 31 basis points in
April-June to a seven-year low as the euro zone’s sovereign debt
crisis, hopes for fiscal reform in Japan and the prospect of the
global economic recovery losing steam boosted demand for
safe-haven debt.

Market players said sentiment remained strong, keeping
Friday’s JGB losses limited.

“Bullish sentiment has been in control since the 10-year
yield fell below 1.155 percent, the low hit (in December 2008)
following the Lehman shock,” said Shinji Nomura, chief
fixed-income strategist at Nikko Cordial Securities.

In wake of the global financial market turmoil following the
collapse of Lehman Brothers, the benchmark 10-year yield dropped
to a five-year low of 1.155 percent in December 2008, a watershed
that was not breached until last week.

“The market hardly responds to bearish factors while perhaps
overreacting to bullish ones in this kind of situation.”

TWO-WAY FLOWS

The yield curve became convex in shape as midterm and
superlong maturity yields were steady to a touch lower, while
those on the long-end rose on selling by dealers making room on
their books ahead a 10-year JGB auction on Tuesday.

Market players said midterm JGBs saw two-way flows from
banks, with some buying for the new quarter while others tried to
book early profits as the July-September quarter began.

The five-year yield (JP5YTN=JBTC: ) dipped 0.5 basis point to
0.320 percent, matching a seven-year low hit the previous day.

The benchmark 10-year yield (JP10YTN=JBTC: ) rose 1.5 basis
points to 1.075 percent after touching a seven-year low of 1.055
percent the previous day.

The 20-year yield declined 0.5 basis point to 1.755 percent
(JP20YTN=JBTC: ), matching an 18-month trough hit the day before.

Persistent weakness in the U.S. housing and labour markets
has further increased doubts about the strength of the global
recovery. A surprise rise in U.S. weekly jobless claims, a
bigger-than-expected fall in pending home sales and
slower-than-forecast manufacturing growth were the latest pieces
of data out of the United States adding to the gloom.
(Editing by Joseph Radford)

JGB futures pull back from 7-yr high on profit-taking