JGBs dip, but losses limited as Nikkei struggles

* Some players sell longer maturities to take profits

* Many pause in aggressive buying after U.S. stock rise

* Japan sovereign CDS spread widens, stocks’ drop eyed

By Satomi Noguchi and Shinichi Saoshiro

TOKYO, May 24 (BestGrowthStock) – Japanese government bond futures
slipped on Monday as investors took profits from a recent rally
to a two-year high, but falls were limited as the Nikkei share
average extended losses made last week.

JGBs were also pressured after U.S. Treasuries ended slightly
lower on Friday following volatile trade.[US/]

U.S. stocks (Read more about the stock market today. ) snapped a three-day losing streak on Friday as
investors bought shares that had been hammered by days of selling
on fear the euro zone debt crisis would spill over and hamper
global growth.

But the Nikkei share average (.N225: ) extended losses made
last week during its biggest weekly drop in over a year.[.T]

JGBs have benefited from increased investor demand for safety
and their yields had fallen to multi-month lows.

Traders said some investors were quick to book profits after
seeing the spread between five-year and 20-year bond yields
tightening sharply and the curve flattening last week.

“Some players look like taking profits in longer maturities
from a sharp curve flattening last week, while many other
investors pause their aggressive bond buying after the U.S. stock
rise late last week provided some calm in the global market,”
said a senior interest rate trader at a European investment bank.

June 10-year futures were down 0.15 point at 140.25 (2JGBv1: ),
but stayed in a reach of a two-year high of 140.61 struck on

The benchmark 10-year yield rose 1 basis point to 1.245
percent (JP10YTN=JBTC: ), after marking a five-month low on Friday
at 1.220 percent.

The 20-year yield rose 1.5 basis points to 2.015 percent
(JP20YTN=JBTC: ), up from a five-month low of 2.000 percent touched
late last week.

The five-year yield climbed 1.5 basis points to 0.430
percent, above its five-year low of 0.400 percent struck on
Friday (JP5YTN=JBTC: ).

The spread between the 5-/20-year yields dropped to 158.5
basis points on Friday, falling towards a four-month low of 155
basis points seen last month, the flattest since December.

Japan’s five-year sovereign credit default swap (CDS) spread
widened to around 95 basis points on Friday, a 14-month high.

There has been very little flow in Japan’s sovereign CDS over
the past few days, and the recent move is due to the widening in
the Asian sovereign and Japan’s iTraxx indexes and the Nikkei’s
rapid decline, a dealer at a foreign bank said.

The iTraxx SovX Asia Pacific index (ITXAP5YCA=MP: ), the first
index based entirely on sovereign CDS on Australia, China,
Indonesia, Japan, South Korea, Malaysia, New Zealand,
Philippines, Thailand and Vietnam, touched a record high of 150
basis points on Friday from its launch at 110 basis points at the
beginning of this month.

The iTraxx Japan CDS index (ITJJP5Y=GF: ), a reference to a
group of the country’s investment grade credits, hovered around
160 basis points, a six-month high.

The sharp decline in the Nikkei has forced investors to hedge
their exposure to convertible bonds said the dealer, explaining
the spread’s widening.

The Nikkei stock average dipped 0.3 percent on Monday to hit
a five-month closing low (.N225: ). [.T]

Penny Stocks

(Editing by Joseph Radford)

JGBs dip, but losses limited as Nikkei struggles