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JGBs tumble as foreign players liquidate positions

TOKYO - Japanese government bond futures tumbled on Friday as foreign players rushed to take profits from this week's steady market gains, which had pushed the lead contract higher to a four-month high.

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JGB futures skidded almost a full point at one stage as many overseas investors moved to liquidate long bond positions with a holiday-thinned market exacerbating sharp moves, traders said.

Capital flow data released the previous day showed that many overseas investors built up long positions, with bond purchases by foreigners at a net 1.225 trillion yen ($11.2 billion) last week, the most in a year.

‘Too many foreign players shared the same position. So the number of overseas investors moving to sell bonds just mushroomed as futures digged lower,’ said a manager for bond trading section at a Japanese bank.

September futures fell 0.55 point to 137.32 after diving as much as 0.97 point to 136.90. On Thursday, the lead contract hit 138.12, the highest since April.

But analysts said losses could be recovered later in the day as surveys and data add to worries about the Japanese and overseas economies, encouraging domestic investors to pick up bonds on dips.

Confidence among Japanese manufacturers sank to a five-year low in August, a Reuters poll showed on Friday, as higher oil and commodity prices push up inflation and slack demand pushes the world's second-biggest economy close to a recession.

The survey came a day after data showed the euro zone economy shrank quarter-on-quarter in the April-June period for the first time since measurements for the single currency area began in 1995.

The benchmark 10-year yield rose 4.5 basis points to 1.475 percent after jumping to 1.500 percent, a level seen high enough to attract domestic investors to scoop up the bonds, traders said.

On Thursday, the 10-year yield had fallen as low as 1.415 percent, the lowest since April.

The five-year yield climbed 5 basis points to 1.045 percent retreating from an earlier high of 1.075 percent.

The 20- and 30-year yields rose 3 basis points to 2.075 percent and 2.260 percent respectively.