JGBs gain on weak US jobs data, Yellen speech eyed

The Japanese government bonds gained Monday as Yen surged after US data showed on Friday that payrolls grew at the slowest pace in almost six years, which dampened prospects for a rate increase by the Federal Reserve in the near term. On the contrary, investors were cautious ahead of Federal Reserve Chair Janet Yellen's speech later in the session, which limited the fall in JGB yields.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell near to 2 basis points to -0.116 percent, yield on super-long 40-year bonds also dipped 1 basis point to 0.382 percent and short-term 2-year bonds yields tumbled ½ basis points to -0.247 percent by 07:00 GMT.

The May Labor Department employment situation report revealed overall only +38k increase in non-farm payrolls, well below market expectations for a +160k increase, as compared to the revised +123k reading in April (previous was +160k). This comes alongside a considerable decrease in the unemployment rate to 4.7 percent, below expectations for a 4.9 percent result, down from 5.0 percent. Average hourly earnings increased +0.2 percent m/m, from revised +0.4 percent m/m reading seen in April, previous was +0.3 percent m/m.

Additionally, average weekly hours held unchanged at 34.4 in May. Overall, weaker net revisions were seen in March and April (net -59k revisions).

On Friday, Japan's ruling LDP in its election manifesto said that they will introduce reduced tax rates with 2019 sales tax hike and will implement measures in Autumn. Said will stimulate housing investments on continued tax breaks while keeping pledge for FY 2020 primary balance goal. Said won't rely on new bonds as the source of social security funds and will take advantage of zero interest rate for investments. Said take all measures to reach JPY 600trln GDP and will aim to further raise the limit to Japan Post Bank deposits. Said will speed up the pace of improving ties with China, Russia, and S. Korea and will consider what US-Japan base agreement should be.

Markets will also focus for Q1 GDP on Wednesday (23:50 GMT). Meanwhile, the benchmark Nikkei 225 index closed down -0.37% at 16,580.03, and the broader Topix index also closed lower 0.36 percent to 1,332.43 points.