Japanese government bond prices closed mostly firmer on Monday after bargain hunters picked up bonds on dips after the U.S. Federal Reserve and the Treasury announced steps to shore up troubled U.S. mortgage giants Fannie Mae and Freddie Mac.

The Fed said it granted the Federal Reserve Bank of New York authority to lend to the two companies “should such lending prove necessary.” They would pay 2.25 percent for any borrowed funds — the same rate given to commercial banks and big Wall Street firms.

“The market moved within narrow ranges and it was not driven by local factors, and investors want to see how the U.S. and European markets will react to the announcement,” said Naomi Hasegawa, senior strategist at Mitsubishi UFJ Securities.

JGB prices were mostly lower in morning trade as recent flight-to-quality movement has eased following the U.S. government’s announcement but its impact on the market proved short-lived.

Japanese stocks, which got a boost from the news, failed to hold onto gains with the Nikkei 225 index closing down 0.2 percent at 13,010.16.

“Considering the significance of those two mortgage lenders to the [U.S.] economy, the financial system seems to have just started to fall into another difficulty,” she said.

One of the events market players are looking forward to include the Bank of Japan’s two-day monetary policy meeting which started today. The central bank is expected to keep rates unchanged amid dim prospects for the global economy due to surging crude oil prices and shaky credit markets.

Investors will also be closely awaiting remarks from Fed Chairman Ben Bernanke when he testifies on monetary policy before U.S. Congress on Tuesday and Wednesday.

The minutes of the Fed meeting on June 24-25 and the Fed’s Beige Book will be released later this week, while Japan holds a 30-year bond auction on Thursday.

The yield on the benchmark 10-year bond fell to 1.580 percent from 1.595 percent on Friday.

The yield on the two-year note was steady at 0.770 percent, and the yield on the five-year note slipped to 1.120 percent from 1.140 percent.

The yield on the 20-year bond edged down to 2.180 percent from 2.185 percent.

There were no transactions in the 30-year bond as well, which closed Friday with a yield of 2.410 percent.

Bond prices move inversely to yields.

The price of the September futures contract was up at 136.07 yen from 135.99 yen on Friday.

($1=106.55 yen)

Source: http://www.afxnews.com

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