JGB yields track US peers lower as traders eye super-sized Fed rate cut

By Kevin Buckland

TOKYO, Sept 5 (Reuters) - Japanese government bond yields sank on Thursday, tracking declines in U.S. Treasury yields after more soft economic data stoked bets the Federal Reserve may cut interest rates by a super-sized 50 basis points (bps) this month.

The 10-year JGB yield dropped 2 bps to 0.865% as of 0441 GMT, after dipping to a two-week low of 0.860% earlier in the session.

Benchmark 10-year JGB futures rose 0.1 yen to 144.92 yen after earlier touching 145.15 yen for the first time since Aug. 16. Bond yields move inversely to prices.

The equivalent-maturity U.S. yields sagged 7.6 bps overnight and continued their decline in Asian time to as low as 3.75%, a one-month trough.

Data released on Wednesday showed U.S. job openings dropped to a 3-1/2-year low in July, spurring traders to ramp up odds of a half-point Fed reduction on Sept. 18 to 45%, from 38% a day earlier, according to the CME Group's FedWatch Tool.

The market is now bracing for weekly U.S. jobless claims data later on Thursday, ahead of all-important monthly payrolls figures on Friday.

"Sentiment-wise, it's just risk-off," said Shoki Omori, chief Japan desk strategist at Mizuho Securities, pointing to heightened demand for bonds amid a sell-off in global equities.

"It's not like people want to trade aggressively - it's more defensive," he added. "People are just trying to prepare their positions for Friday."

While Omori expects the Fed to opt for a 25-bp reduction this month, as "the U.S. economy is still OK," if equities continue to dive, it could push 10-year JGB yields to 0.82%.

The 30-year JGB yield declined 2 bps to 2.045%, with analysts describing the results of an auction of the bonds on Thursday as decent.

The 20-year JGB yield lost 1.5 bps to 1.680%.

The five-year yield edged down 0.5 bp to 0.50%, while the two-year yield was flat at 0.37%. (Reporting by Kevin Buckland; Editing by Eileen Soreng)