Japanese government bonds end morning sharply higher on US recession worries

Fri, Feb 22 2008, 03:20 GMT
http://www.afxnews.com

TOKYO (Thomson Financial) - Japanese government bond prices were sharply higher Friday morning after US Treasury prices climbed as more data indicated a further deterioration of the US economy.

Overnight, the US bond market rallied after the Philadelphia Federal Reserve said local manufacturing shrank further in February, marking the largest contraction in seven years.

"Funds were flowing in the bond market as the US data dampened economic sentiment and the Nikkei index fell sharply," said Maki Shimizu, a fixed-income strategist at UBS Securities.

On the Tokyo stock market, the Nikkei 225 Stock Average plunged 264.34 points or 1.9 percent to 13,423.94 in the morning session.

The bond market showed little reaction to remarks by Bank of Japan governor Toshihiko Fukui who warned of increased uncertainties about the Japanese economy at a parliamentary committee.

He cited the growing downside risks to the US economy and continuing volatility in the financial markets.

While Fukui expressed confidence about the sustainability of a recovery in the world's second-largest economy, he indicated that the central bank will place emphasis on downside risks when managing monetary policy in the near term.

"Amid little market incentives today, investors are expected to track the stock market performance and another speech by Bank of Japan governor Fukui today as he may provide a greater explanation of the economic conditions," Shimizu said.

At midday, the yield on the benchmark 10-year bond was down at 1.445 percent from 1.490 percent late Thursday.

The yield on the 2-year note dropped to 0.570 percent from 0.595 percent and the yield on the 5-year bond fell to 0.920 percent from 0.965 percent.

The yield on the 20-year bond declined to 2.080 percent from 2.110 percent and the yield on the 30-year bond was down at 2.320 percent from 2.345 percent.

Bond prices move inversely to yields.

The price of the March futures contract for the 10-year bond climbed to 137.55 yen from 137.08 yen late Thursday.

(1 US dollar = 107.45 yen)