Japanese government bonds futures rise

A fall in Tokyo share prices upped the demand for safe haven government debt. On Thursday Japanese government bond edged higher.

Credit markets were seen supporting the JGB as worries about Japanese recession and outlook on share prices were sliding.

"The situation surrounding banks' loan assets is not favorable, while equities and credit assets have not settled down," said Chotaro Morita, chief fixed income strategist for Japan at Barclays Capital.

Morita added that domestic financial institutions will take such market and economic conditions into account as they draw up their investment plans for the fiscal year’s second half.

"Generally speaking, buying on dips is likely to be their favoured stance," Morita said, referring to JGBs.

The lead December 10-year JGB futures contract rose 0.19 point to 137.60 2JGBv1.

The 10-year JGB yield dipped 2 basis points to 1.485 percent, pulling away from a one-month high of 1.550 percent hit on Monday.

The benchmark Nikkei share average fell 1.2 percent

NEW ISSUANCE

Little market impact was seen after the Nikkei business daily reported that the government would issue new government bonds to help finance a recently opened economic package.

"I don't think there will be any problems with that kind of number," said Atsushi Ito, fixed income strategist for Morgan Stanley.

Any such new issuance may take the form of short-term Japanese government bonds such as two-year notes, Ito added.

On Thursday, a data showed that Japan’s main private-sector machinery orders fell 3.9 percent in July from the previous month. Though smaller that the market forecast, it didn’t ease concerns about the future of capital spending.

Two new Samurai bond were launched in the yen bond market, Australia and New Zealand Banking Groupselling a total of 88.5 billion yen in Samurai bonds, and Credit Suisse Group Finance Ltd selling 64.3 billion yen.

The market for Samurai bonds, yen bonds issued in Japan by non-Japanese entities, has flourished this year with overseas borrowers rushing to tap Japanese investors as the global credit crisis makes lenders wary in the United States and Europe.