JGBs slip as Nikkei surge knocks wind out of rally

* Benchmark yield rises to a 5-month high of 1.200 pct

* Futures hit as CTA selling re-emerges

* Superlongs slip on pre-auction selling

By Shinichi Saoshiro

TOKYO, Dec 2 (BestGrowthStock) – Japanese government bonds slid on
Thursday, giving back a swathe of gains from the previous day’s
rally as Tokyo stocks climbed to a fresh five-month high and
dulled the appeal of debt.

A slide by U.S. Treasuries in the wake of sturdy economic
data also weighed on JGBs, helping force the benchmark yield to a
five-month high of 1.200 percent a day after bonds surged in
relief over the success of a 10-year auction.

December 10-year futures (2JGBv1: ) fell 0.39 point to 140.94
after rising nearly half a point the previous day as speculators
including commodity trading advisers (CTAs) resumed selling,
dealers said.

“I thought the market had found a foothold after yesterday’s
auction, but it has surrendered gains without much of a fight
today,” said a fund manager at a domestic asset management firm.

“It underscores soft sentiment as stocks show unexpected
resiliency. Investors are willing to bargain-hunt when given the
chance but they won’t chase yields much lower. The benchmark’s
1.200 percent level could become just a passing point, not a
barrier.”

Others, however, said the bear market could be mostly over
with the 10-year yield having risen nearly 30 basis points over
the past month.

“The market retreat looks to have mostly run its course with
risk reduction by investors going on a lower boil,” said Akito
Fukunaga, chief fixed-income strategist at RBS Securities in
Tokyo.

The 10-year yield (JP10YTN=JBTC: ) climbed to a five-month high
of 1.200 percent, although bargain-hunting by investors such as
regional banks who were late in catching the previous day’s
post-auction surge helped keep it below that level for now.

The short-end suffered the least losses with the two-year
yield (JP2YTN=JBTC: ) edging up 0.5 basis point to 0.185 percent.
The yield has pulled back from a one-year high of 0.210 percent
hit early this week.

Expectations for further central bank easing has ebbed now
that the Nikkei share average (.N225: ) has recovered from lows
seen in early November and the yen has retreated, driving up two-
and five-year yields in the past two months. But market
participants said the yield rise also looked like it had gone too
far.

Superlongs, on the other hand, sagged on dealers selling to
make room for next week’s 20-year auction and curve players
unwinding flattening positions, traders said.

The 20-year yield (JP20YTN=JBTC: ) climbed 3 basis points to
1.995 percent after rising to 2.000 percent, a new 5-