Rise in stocks after AIG rescue prompts JGB fall

The hara-kiri fall resulted when Japanese government futures bonds took a nosedive last Wednesday when the stocks in Tokyo ended up rising more than two percent, keeping hope that the Federal Reserve can intervene and rescue the insurer AIG or the American International Group. There was also a rise in the yields of the United States Treasury during the earlier part of the Asian trade, considering the two-year note with a yield that jumped from 1.93 percent to 1.79 percent. These results were submitted late Tuesday in New York.

Fed Plans

The Federal Reserve also plans to shoulder an allocation of eighty five billion to bridge the loans to American International Group. They will also take a total of eighty percent stakes in the American International group. This was according to a source which was asked to brief on the matter. This piece of information actually helped to ease the appetite of investors when it comes to safe-havening the government’s debt securities. While the slide in futures was actually due to the fact that they experienced a very recent but sharp gain which resulted in their becoming more expensive than the cash bonds. On the other hand, the selling JGBs cash was also limited because of the remaining jitters as well as clouds of uncertainty that has plagued the United States financial system, says the trader.

Limited Selling Prompts Uncertainty

According to Tatsuo Ichikawa, selling is somewhat limited as a reflection of how the entire JGB market players do not fully become convinced that the rescue plan is actually a good thing and that they are also unwilling to come up with a one-way bet. Tatsuo Ichikawa is a registered bond strategist who works at the RBS Securities in Tokyo. More woes ensued when the ten year JGB futures contract actually went down by 0.90 points to around 138.55. This was the result of soaring by the daily limit composed of three full points last Tuesday, on word that safe haven buying is open right after news of the Lehman Brothers collapse broke out.

More figures are pointing out that the Nikkei stock averages to around a two percent rise in extended gains at a certain point just before it was able to trim down a bit of gains to again rise to 1.2 percent. The ten year benchmark of JGB raised a mere two basis points to rest at 1.485 percent. This also moves away from a five month low of around 1.375 percent when hit last Tuesday. A trader at a Japanese firm also discloses that the selling of futures is actually a quite natural course because of AIG’s rescue, which turns out to be a bit of good news for most stocks and thereby pushes the Treasuries to a lower value.