JGBs lose gains on oil worries (Reuters) (08-03-2011)

TOKYO - Japanese government bonds lost gains on Tuesday with 10-year futures dropping on profit-taking after a five-week peak the previous day, though concerns that high oil prices may hurt the economy limited losses.

The benchmark yield was staying around 1.3 percent in the near term, lacking a clear direction as the market grapples with the competing forces of safe-haven bids and a generally improving outlook for the global economy.

March 10-year futures fell 0.12 point to 139.59, leaving back a five-week high of 139.89 struck the previous day. The benchmark 10-year yield rose 2.5 basis points to 1.295 percent.

In a 600 billion yen ($7.3 billion) 30-year bond auction on Tuesday, demand was not strong compared to previous auctions and the bid-to-cover ratio fell to 3.58 from 5.77 at the previous sale in January and is lower than 3.84, the average ratio from the past 12 sales.

The 10-year/30-year yield spread rose above 94 basis points this week to its highest since late January, although it edged down slightly after the auction.

The 5-year auction on Thursday is likely to draw more attention as the market will be able to gauge how strong demand from banks, the main players in the midterm zone, will be towards the fiscal year-end.

Limited reaction was noticed in the JGB market to a warning of a possible sovereign debt downgrade by a Japanese ratings agency. Japan's sovereign debt rating is possible to be cut before local elections in April as deepening political turmoil could delay efforts to fix the country's tattered public finances.

Source: Reuters