The yield on the benchmark 10-year cash Japanese government bond (JGB) edged up on Monday, reversing a rally that earlier drove it to a 10-month low as investors fretted about low yields and Japanese stock prices firmed. Analysts said the dip in the 10-year yield to as low as 1.285 percent, a level not seen since March, in the morning session had made many investors anxious that prices were climbing too high, particularly ahead of a 10-year auction later in the week.

"After the buying we saw this morning, investors simply started to get concerned about yields falling too low, and that's one of the reasons why buying turned into selling," said Tetsuya Miura, a bond strategist at Shinko Securities.

The market's morning rally had been spurred by buying in longer sectors, boosted by gains in US Treasuries after soft US gross domestic product figures tempered concerns about the possibility of US interest rates rising faster than expected.

The US data had initially helped to extend buying of JGBs after Japanese data released late last week suggested that Japan's economy remained in a soft patch, which investors considered as a signal to buy bonds.

The yield on the 10-year cash JGB was up 1.5 basis points at 1.320 percent after skidding to a low of 1.285 percent in the morning session. It rose as high as 1.335 percent in the afternoon.

"It looks like there's some repositioning going on after some investors became nervous after the yield broke below 1.3 percent," said Naomi Hasegawa, a senior fixed income strategist at Mitsubishi Securities. "Other investors saw the drop as a good time to get some hedge selling in ahead of the auction."

Hasegawa was referring to the Ministry of Finance's 1.9 trillion yen ($18.33 billion) auction of 10-year debt on Thursday. Judging by current yields, the auction's coupon is seen being set at 1.3 percent, the lowest since March.

Ten-year futures ended the afternoon session down 0.18 point at 139.60, after narrowly missing a 10 1/2-month high of 140 in morning trade.

The 20-year yield was up 1.5 basis points at 1.975 percent, after dipping to 1.940 percent in earlier trading, while the 30-year yield was also up 1.5 basis points at 2.330 percent, compared with 2.280 percent. The stock market's Nikkei average ended the day up 0.59 percent at 11,387.59, after gaining more than one percent in late trade.

The benchmark June three-month interest rate futures fell 0.005 point to 99.900, indicating an interbank rate of 0.10 percent in that month, little changed from now.

Copyright Reuters, 2005