JGBs slightly lower, Japan’s fiscal health in focus

* JGBs edge lower on profit-taking after shares gain

* Investors on sidelines ahead of U.S. jobs data

* Abundant cash pushes repo rates lower, supports cash bonds

* 10-yr yield seen staying rangebound around 1.2 percent

By Akiko Takeda and Hideyuki Sano

TOKYO, March 31 (Reuters) – Japanese government bonds ended
steady to slightly lower on Thursday after failing to hold
earlier gains, ending the quarter lower as a devastating
earthquake put worries about Japan’s deteriorating fiscal health
in focus.

As the Japanese government is expected to compile
its first supplementary budget as early as next month for
reconstruction after the quake and subsequent tsunami, investors
are reluctant to bid up aggressively despite an expected
slowdown in the economy, leading analysts to expect rangebound
trade in the near future.

“Profit-taking is expected below 1.2 percent in
the 10-year yield, but buying is expected on dips as JGBs remain
the main product in asset management among Japanese investors,”
said Hidenori Suezawa, chief strategist at Nikko Cordial
Securities.

Japanese banks are expected to have ample cash even though
some companies are increasing borrowing from banks after the
earthquake, Suezawa said.

In the money market, players said demand for funds remained
very low, sending repo rates to 0.074 percent on Thursday
compared to the 0.10 percent interest rate paid by the Bank of
Japan for excess reserves.

The money market has abundant cash with current account
deposits at the BOJ over 40 trillion yen ($491.1 billion),
staying near record highs.

“We could say JGBs were firm overall with futures
outperforming as a result of ample cash in the money market,” a
trader at a Japanese bank said.

“With all the money, it is hard to sell notes especially in
short and medium maturities. Steadiness in short term paper
spread out to longer maturities as well,” he said.

Thus June 10-year futures (2JGBv1: Quote, Profile, Research) stayed positive for most
of the day before late rise in Japanese share prices sent bond
prices down.

The June contract rose to as high as 139.84, a little below
the top of the cloud on Ichimoku charts around 139.88, before
slipping back to close at 139.55, down 0.02 point on the day.

Cash bonds ticked down as well although most domestic
investors remained on the sidelines as the fiscal year ends on
Thursday, and ahead of U.S jobs data on Friday at 1230 GMT.
[ID:nN30121489]

The 10-year yield rose 1.5 basis points to
1.255 percent, a two-week high, while the 30-year yield
was unchanged at 2.180 percent.

The two-year yield and the five-year yield
were up 0.5 basis points to 0.210 percent and
0.490 percent respectively.

Market participants expected trade to stay rangebound in the
near term, with the 10-year yield likely to stay at 1.2 percent
to 1.25 percent.

The size of the Japanese government’s emergency budgets and
possible bond issuance for disaster relief and developments at
the quake-stricken nuclear plant in northeast Japan remained a
market focus.

Japan’s deputy finance minister Mitsuru Sakurai signalled on
Thursday that the government may need to spend over 10 trillion
yen ($120 billion) in emergency budgets for disaster relief and
reconstruction. [ID:nL3E7EV0H6]

($1=82.875 Japanese Yen)

(Additional reporting by Takahiro Okamoto, a senior rates
analyst at IFR Markets; Editing by Joseph Radford)

))

JGBs slightly lower, Japan’s fiscal health in focus