Reuters Tokyo – Japanese government bond futures soared by their daily limit of 3 full points on Tuesday and 10-year yields hit a five-month low on safe-haven buying in the wake of the collapse of Lehman Brothers.

Global stock markets and crude oil prices plunged on Monday after Lehman, crushed by losses from the U.S. mortgage crisis and unable to find a buyer, sought bankruptcy protection.

"A pretty sharp increase in credit risk and worries about credit seems inevitable," said Naomi Hasegawa, senior fixed income strategist for Mitsubishi UFJ Securities.

Growing expectations that the U.S. Federal Reserve may lower interest rates at a policy meeting later on Tuesday were also giving a lift to JGBs and euroyen futures, Hasegawa said.

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CNBC – Japanese government bond futures tumbled nearly a full point on Thursday, with traders citing selling by foreign funds in a move that was exaggerated by thin conditions.

September futures plunged as much as 1.14 points to 137.11 as market players suspect that hedge funds sold a large amount of futures abruptly, with other market players spooked by the move and dumping positions as well.

Traders and analysts cited a variety of reasons — including selling tied to the lead contract’s roll-over next week and flows in the interest rate swaps market — but said there was not a single trigger. "A sudden selling of futures without any big cash bond market action showed the move was highly related to hedge funds who trade purely on technical reasons," said Satoshi Yamada, a senior strategist at Nikko Citigroup.

Other market players said the sharp drop showed just how fragile financial markets are right now as damaged banks have pulled back. "Why today? Why now? Why JGBs? Who knows," said Joseph Kraft, head of Japan capital markets at Dresdner Kleinwort. "Banks are scaling back and volumes are very thin. When you see sizable selling, everyone gets out of the way." The lead futures contract fell 0.85 point to 137.50, pulling further away from a four-month high of 138.80 hit last week.

Among other reasons noted for the selling, traders said that some bond dealers may have sold futures to hedge their books before the pricing of five-year bonds issued by two utilities. Others said that commodity trading advisers, or CTAs, may have finally sold futures because of their relative steepness compared with the cash market — a trend that had stirred worries in the market that it could lead to a sell-off.

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