Japanese govt bonds close lower on hazy US bond yield outlook, BoJ rate prospect

TOKYO (XFN-ASIA) - Japanese government bond prices closed lower as lingering fears of sharp rises in US Treasury bond yields, along with persistent expectations of an interest rate hike in August by the Bank of Japan, capped the upside for JGB prices.
At the close, the yield on the bellwether 10-year bond was 1.925 pct, up from 1.890 pct yesterday.
The yield on the two-year note had inched up to 1.030 pct from 1.010 pct, while the yield on the five-year note had risen to 1.520 pct from 1.485 pct.
The yield on the 20-year bond had inched up to 2.310 pct from 2.300 pct, while the yield on the 30-year bond had risen to 1.520 pct from 2.500.
Bond prices move inversely to yields.
The price of the September futures contract for 10-year bonds had fallen to 131.35 yen from 131.64 yesterday.
"Expectations of a rate hike in July have faded (following softer-than-expected remarks Friday by BoJ governor Toshihiko Fukui), though it's only two months left before the vast majority of market players expect the central bank move to take place in August. In this environment, JGB prices don't have much room to climb," said Akitsugu Bando, strategist at Okasan Securities.
Short-covering seen yesterday to factor in fading expectations of a rate hike next month had mostly run out of steam, while some caution about prospects for US Treasury bond yields continued to weigh on investor sentiment following the directionless trading overnight, dealers said.
The yield on the benchmark 10-year US Treasury note climbed to as high as 5.18 pct overnight in the US before closing the trade at 5.15 pct, just below Friday's 5.16 pct.
Prices of longer-term bonds rose in the morning as investors rebalanced their portfolios on the view that these instruments have been over-sold in recent sessions. The longer tenors, however, fell back in late trading as the market became top-heavy, prompting selling across the yield curve