* Ten-year JGB futures touch two-week high in light volume
* Two-year JGB yield falls to nearly 3-month low
* Twenty-year JGB yield hits five-week low
By Dominic Lau
TOKYO, Aug 5 (Reuters) - Japanese government bond prices rose on Monday, with the 10-year yield logging its biggest one-day fall in seven weeks, tracking firmer U.S. Treasuries as slower-than-expected U.S. jobs growth raised uncertainty over when the Federal Reserve will scale back its stimulus.
The 10-year yield slipped 3.5 basis points to 0.770 percent, more than reversing last week’s 3 basis point rise to hit a near two-week low.
U.S. employers slowed their pace of hiring in July but the jobless rate fell, a pair of mixed signals that could make the Federal Reserve more cautious about drawing down its huge economic stimulus programme.
“The (U.S. jobs) report was slightly weaker than expected, but it was sort of on the expected level,” said a fixed-income fund manager at a Japanese asset management firm in Tokyo.
Should the Fed were to scale back its $85 billion a month bond-buying programme in coming months, the U.S. Treasury yields would likely move higher, which will pressure on the JGB yields.
The 10-year futures were up 0.36 point at 143.72 after trading as much as 143.78 to a two-week high. Trading volume was light, with 15,461 contracts changing hands, down from a six-week high of 28,942 contracts hit on Friday and last week’s daily average of 19,599.
The market was also supported by the Bank of Japan’s offer to buy 700 billion yen ($7.1 billion) of JGBs with residual maturities of one-year to more than 10 years - part of its radical monetary stimulus policies to revive the world’s third-largest economy.
The two-year yield eased 0.5 basis point to 0.110 percent, its lowest level since May 10.
The five-year yield dipped 2 basis points to 0.280 percent and came off a two-week high touched in the previous session.
The Japanese central bank is expected to keep monetary policy on hold at a two-day meeting starting on Wednesday as its unprecedented quantitative easing and government stimulus gradually spread through the economy.
“We suspect that the BOJ’s increased purchasing is underpinning supply/demand to a considerable extent, and is contributing to JGB outperformance,” Barclays Securities wrote in a report.
“While there is no guarantee that this overheating will correct anytime soon, we see limited scope for further outperformace and would assume a fairly steep rise in JGB yields once UST yields turn upward.”
The 30-year yield was down 1 basis point at 1.810 percent, while the 20-year yield eased 1.5 basis points to 1.695 percent after hitting a five-week low of 1.690 percent.
The Ministry of Finance is to sell 500 billion yen of 30-year bonds on Friday.