TOKYO, Dec 25: Japanese government bond futures fell sharply on Tuesday in thin trade ahead of the year-end, hurt by a rise in Tokyo share prices and the previous day’s falls in US Treasuries.

Trading activity was light with the year-end’s approach and with Tokyo traders returning from a three-day weekend.

US Treasuries sagged on Monday in shortened pre-Christmas trading as share prices rallied on news of Merrill Lynch’s capital infusion plan, which pared safe-haven demand for US government debt.

Merrill Lynch & Co Inc shored up its capital base by as much as $7.5 billion after selling a stake to Singapore’s government and an asset manager and unloading much of a lending business as it wrestles with huge subprime mortgage losses.

“There wasn’t much selling or buying in cash JGBs but there was talk of large-lot selling in JGB futures by overseas funds, and the selling in futures weighed on the market,” said a portfolio manager for a major Japanese insurer.

Domestic investors may be taking a wait-and-see stance ahead of a 10-year bond auction in early January, he said.

March 10-year JGB futures fell by

0.44 point from Friday’s close and finished the regular trading session at the day’s low of 136.05 Total volume was a light 29,928 lots.

JGB futures edged close to a trough of 135.94 hit earlier this month that was the lowest since early November.The benchmark 10-year yield rose three basis points to 1.580 per cent A rise above 1.585 per cent would take 10-year yields to their highest since early November.

JGB markets were closed on Monday for a national holiday.

In the stock market, the benchmark Nikkei share average rose 1.9 per cent.

JGBs have been supported over the past few months as market players have pushed back their expectations on the possible timing of a Bank of Japan rate rise from the current 0.5 per cent.

Many now expect the BOJ to wait to raise interest rates until the third quarter of next year because of turmoil in global credit markets and signs of an economic slowdown in Japan.—Reuters