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JGB futures edge up as Nikkei slips on profit taking

2008-12-01 01:32:24 GMT (Reuters)
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* JGB futures draw support from Nikkei's slip

* JGB gains limited by caution ahead of a 10-yr JGB auction

By Shinichi Saoshiro

TOKYO, Dec 1 (Reuters) - Japanese government bonds edged up on Monday on a dip in Tokyo shares and gains by U.S. Treasuries at the end of last week.

Longer-dated JGBs sagged on caution ahead of a 1.9 trillion yen 10-year JGB auction on Tuesday.

Analysts said market participants were wary of driving the long-term yield, just a few basis points above seven month lows, further down before the bond tender.

But in the longer run, the market expects JGB yields to remain under downward pressure as major central banks gear up for more monetary easing.

"We expect a gradual decline in Japan's long-term yield as the European Central Bank and Bank of England are expected to enter their next round of rate cuts," said Hajime Takata, a chief strategist at Mizuho Securities, in a note to clients.

"Expectations of further easing by the Federal Reserve will also grow as a slowdown by the U.S. economy becomes more obvious after Thanksgiving," said Takata.

Economists expect the ECB to cut interest rates by at least 0.5 percent at a monetary policy meeting on Thursday. The BoE is also widely expected announce a rate cut after its two-day policy meeting ends on Thursday.

The December 10-year JGB futures rose 0.06 point to 139.44.

The benchmark 10-year JGB yield rose 0.5 basis point to 1.395 percent.

The 10-year dipped and matched a seven-month low of 1.355 percent on Friday as latest indicators showed that the Japanese economy was headed deeper into recession and faced a risk of slipping back into deflation.

The two-year yield dipped 0.5 basis point to 0.585 percent.

Tokyo's Nikkei share average shed more than 2 percent as concerns over the weakening global economy prompted investors to take profits after last week's rally.

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