Japanese government bonds close mixed with some help from weaker stock markets

TOKYO (Thomson Financial) - Japanese government bond prices closed mixed Wednesday with shorter maturities finding support from a downturn in the stock market as the yen strengthened against the dollar. Investors were also awaiting a five-year bond auction on Thursday.

The Nikkei 225 Stock Average closed down 0.9 percent at 16,096.68, reversing morning gains. The broader TOPIX index dropped 1.1 percent to 1,556.69.

"I had expected more position adjustment ahead of the 5-year auction tomorrow but the bond market reacted to weak stocks," said Katsutoshi Inadome, a strategist at Mitsubishi UFJ Securities.

"Investors were generally watching the timing of buying on the dips as bond prices are too high," he said.

Major Japanese banks will announce their mid-year earnings this month and investors will be monitoring any disclosures relating to the subprime mortgage market crisis.

Akitsugu Bando, senior strategist at Okasan Securities, said the bond market is not seeing signs yet that the US subprime mess may turn into a global crisis.

Most bond market participants view recent news about financial giants Merrill Lynch and Citigroup and their subprime-related losses as a US issue.

The yield on the benchmark 10-year bond closed at 1.565 percent versus 1.570 percent late Tuesday.

The yield on the two-year note rose to 0.780 percent from 0.770 percent and the yield on the five-year note dipped to 1.075 percent from 1.085 percent.

The yield on the 20-year bond edged up to 2.125 percent from 2.120 percent, and the yield on the 30-year bond was up at 2.355 percent from 2.350 percent.

Bond prices move inversely to yields.

The price of the December futures contract for the 10-year bond rose to 136.30 yen from 136.15 yen late Tuesday.

(1 US dollar = 113.85 yen) kaori.kaneko@thomson.com - kk/cl COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved.

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.