Japanese government bond futures fell in light trading on Wednesday as investors waited for U.S. lawmakers to approve the U.S. government’s $700 billion bailout for financial firms.

Losses were limited, with JGBs drawing support from concerns about the domestic economy’s outlook and market expectations for the Bank of Japan to hold off from raising interest rates for a while.

Trading volumes were light, partly because investors were reluctant to trade actively with the Sept. 30 first half of Japan’s fiscal year approaching, market players said.

“Basically there is not much activity and market players are in wait-and-see mode,” said a portfolio manager for a Japanese insurer, adding that investors were waiting for the U.S. government’s bailout plan to be finalised.

The Bush administration’s push for quick congressional approval of a $700 billion bailout for financial firms hit a wall of opposition on Tuesday among senators who said the plan puts taxpayers at excessive risk.

December 10-year JGB futures fell 0.07 point from Monday’s close to 136.96. Tokyo financial markets were closed on Tuesday for a national holiday.

Futures had hit a 5- month peak of 140.35 last week, when JGBs soared on safe-haven buying after the collapse of investment bank Lehman Brothers.

The benchmark 10-year JGB yield eased 0.5 basis point to 1.480 percent.

The super-long sector fared better and the yield curve flattened as a result, with 20-year yields falling 3 basis points to 2.110 percent.

JGBs showed limited reaction to news that Warren Buffett’s Berkshire Hathaway Inc will invest $5 billion in Goldman Sachs Group Inc.

U.S. Treasuries fell in Asia following the news, with the benchmark 10-year U.S. Treasury yield rising by as much as 5 basis points from late U.S. trading on Tuesday to 3.856 percent <US10YT=RR>, although Treasuries later trimmed some losses.

A senior dealer at a Japanese trading firm said there was room for the JGB market to fall as more players become convinced the aggressive measures laid out by the U.S. government over the past week will be effective in stabilising the financial crisis.

“JGB prices appear to have not fallen as much despite the aggressive U.S. measures, which suggest the market is due for a correction sooner or later,” he said.

The BOJ pumped 1.5 trillion yen ($14.19 billion) in same-day funds to help alleviate tightness in the yen money market, bringing the total of its same-day fund injections in the wake of Lehman’s collapse to 14 trillion yen.

Overnight call rates later fell as low as 0.1 percent from a high near 0.6 percent before the BOJ’s operation, above the central bank’s 0.5 percent policy target. Funding needs among foreign financial institutions remained strong, traders said.

The BOJ also offered $30 billion in one-month funds to the money market on Wednesday, as part of a worldwide central bank effort to deal with strong dollar demand.

The Ministry of Finance will offer 1.8 trillion yen ($17.02 billion) of two-year JGBs on Thursday, with traders expecting decent demand from investors given the outlook for steady interest rates in Japan.

($1=105.70 Yen)

Source: http://www.afxnews.com

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