JGBs rise as Nikkei slides on euro fall to 4-yr low

* 5-yr yield touches 5-mth low as Nikkei slides 2 pct

* Stocks hit as euro drops to 4-yr trough vs dollar

* JGB gains limited before Tuesday’s 5-yr auction

* Fitch says no action on Japan sovereign rating

By Shinichi Saoshiro

TOKYO, May 17 (BestGrowthStock) – Japanese government bonds gained on
Monday, with the five-year yield hitting a five-month low, as
Tokyo stocks slid with the euro marking a four-year low against
the dollar on persistent fiscal concerns about Europe.

JGB gains, however, were limited by caution ahead of debt
auctions later in the week.

The Nikkei stock average (.N225: ) lost 2 percent after briefly
touching a two-month low with exporters hit by the appreciating
yen. [.T]

The euro (EUR=: ) dropped to a four-year low against the dollar
and fell towards an eight-year trough versus the yen (EURJPY=R: )
on Monday as belt-tightening measures required by heavily
indebted euro zone countries such as Greece, Spain and Portugal
have raised fears that the region’s economic recovery could be
suffocated. [FRX/]

June 10-year JGB futures climbed 0.07 point to 139.92
(2JGBv1: ), edging towards a two-month high of 140.10 struck
earlier in the month.

“Futures received a lift, with some short positions covered,
after the market witnessed the turbulence in European stocks late
last week,” said Takafumi Yamawaki, a senior rates strategist at
BNP Paribas Securities.

Futures were capped ahead of Tuesday’s five-year sale,
Yamawaki said.

Market participants were not keen to see JGB yields drop too
low, wary of investor demand being dampened ahead of the 2.4
trillion yen ($25.96 billion) five-year debt auction.

The five-year yield (JP5YTN=JBTC: ) fell 1 basis point to 0.445
percent after hitting a five-month low of 0.440 percent.

A further decline in the five-year yield could increase the
likelihood of the new five-year coupon being lowered to 0.4
percent from 0.5 percent at the previous auction last month,
which would be the lowest since 2003 and not a very welcome
prospect for potential bond buyers.

Futures remained above water amid market rumours earlier that
Fitch may downgrade Japan’s rating.

But the rating agency said it had not taken any action on the
country’s sovereign rating, adding that the outlook for Japan’s
AA- local currency rating is stable. [ID:nTOE64G01X]

The benchmark 10-year yield dipped 1 basis point to 1.285
percent (JP10YTN=JBTC: ).

The 20-year yield fell 1 basis point to 2.080 percent
(JP20YTN=JBTC: ).

JGBs were also buoyed as U.S. Treasuries rallied on Friday
with worries about the euro zone’s debt crisis fuelling bids for
safe-haven government debt. [US/]

Growth Stocks

(Editing by Joseph Radford)

JGBs rise as Nikkei slides on euro fall to 4-yr low