JGB futures jump as investors flee stock slide

TOKYO, Aug 29 (Reuters) Japanese government bond futures jumped on Wednesday after U.S. Treasuries gained and investors fled a sliding Tokyo stock market.

U.S. Treasuries yields hit five-month lows on Tuesday after data showed falling U.S. consumer confidence and sliding house prices, and the minutes of the Federal Reserve's Aug. 7 policy meeting reflected concern over a liquidity and credit squeeze in world financial markets even before market volatility shot up.

In Tokyo, September 10-year futures shot up 0.50 point to 135.95, nearing the 18-month high of 136.46 hit last week.

Fears about a credit squeeze were renewed after brokerage Merrill Lynch downgraded Bear Stearns Cos., Lehman Brothers and Citigroup, citing problems in the debt markets and slowing takeover activity.

Rising concern about a deteriorating credit market and economy was pushing back expectations for an interest rate hike by the Bank of Japan in September, giving a boost to JGBs.

''We don't see any profit-taking orders for JGBs even though the jump was big. That may mean there are a lot of people who were unable to buy enough JGBs,'' said a senior trader at a Japanese Securities house.

Benchmark 10-year yields fell 4.5 basis points to 1.570 percent after going as low as 1.565 percent, while five-year yields were down 5 basis points to 1.115 percent.

The Nikkei share average fell more than 2 percent.

The JGB market is also likely to be supported by reallocation needs from large bond redemptions next month and the month-end extension of main benchmark indexes such as the Nomura BPI, analysts said.

Reuters RKM VP0700