JGBs edge lower on Treasuries, stock market gains

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TOKYO, Oct 15 (Reuters) Japanese government bonds edged lower on Monday, tracking a fall in U.S. Treasuries in the previous session, while a gain in Tokyo shares also prompted investors to trim positions.

Treasuries fell on Friday after firm economic data eroded expectations of a Federal Reserve rate cut this month, which in turn increased the likelihood of a Bank of Japan interest rate hike this year or early next year.

But with little major domestic economic data due out soon, most investors refrained from taking big positions and looked to developments in overseas markets and the performance of domestic stocks for direction, analysts said.

''The JGB market may not move much until there is a shift in expectations for a Fed interest rate cut after Fed's Beige Book and housing data this week,'' said Tetsuya Miura, a bond strategist at Shinko Securities.

December 10-year futures fell 0.25 point to 134.47, trading in a range above their two-month low of 134.14 hit last week.

The benchmark 10-year yield rose 1.5 basis points to 1.715 percent.

The five-year yield rose 3 basis points to 1.260 percent.

Traders said super-long JGBs were trading heavily as dealers sold them to hedge ahead of Tuesday's 30-year bond auction.

The 30-year yield rose 3.5 basis points to 2.505 percent, matching its highest level since late July touched last week.

The 20-year yield rose 3 basis points to 2.250 percent, nearing 2.255 percent, its highest since late July.

Market players showed little reaction to a speech by BOJ Governor Toshihiko Fukui at a meeting of the central bank's regional branch managers on Monday, as Fukui reiterated his stance on monetary policy from last week.

Fukui said after the central bank's policy meeting last Thursday that there was no change in the BOJ's stance on gradually adjusting interest rates in line with economic conditions.

The BOJ kept its benchmark rate at 0.5 percent last week as widely expected, while acknowledging that nervous global financial markets and problems in the U.S. housing sector were delaying the central bank's push to raise Japan's low rates towards more normal levels.

The Nikkei share average rose 0.45 percent in early trade.

Among this week's U.S. economic data, September housing starts, due on Wednesday, will be closely watched as that industry remains in a slump.

On Wednesday, the Fed's Beige Book also will be studied for clues on whether the U.S. central bank will cut interest rates again or hold steady when it meets at the end of October.

Reuters CS VP0642

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