Japanese govt bonds end morning mostly higher on recession worry

Japanese government bonds were mostly higher at the end of the morning session on Wednesday led by bargain hunters on the back of growing views about the risk of economic recession.

At the outset of trading, the JGB market was sold off following losses on the U.S. Treasury market on receding speculation about rate hikes in the near term after the Federal Reserve left interest rates steady and crude oil prices declined.

'Buying back in the futures market was seen backed by existing worries about Japan's economy,' said Akitsugu Bando, senior economist at Okasan Securities.

Japan will release its April-June gross domestic product data next week with many economists forecasting growth to show a contraction.

The Fed overnight indicated heightened worries about economic growth by dropping language from its previous statement that said downside risks to growth 'appear to have diminished somewhat'.

Crude oil fell as low as $118 a barrel on the New York Mercantile Exchange before settling at $119.17, down $2.24.

'The market has already priced in the inflation risk and the deteriorating economy, so there was no surprise in the Fed's accompanying statement,' Bando said.

Investors also refrained from taking large positions before the finance ministry's 10-year inflation-indexed bond auction on Thursday.

On the Tokyo stock market, the Nikkei 225 (news) index had risen 2.2 percent to 13,201.90 at the end of the morning session.

At the midday break, the yield on the benchmark 10-year bond was down at 1.535 percent from 1.545 percent late on Tuesday.

The yield on the two-year note was unchanged at 0.750 percent, while the yield on the five-year note slipped to 1.070 percent from 1.085 percent.

The yield on the 20-year bond fell to 2.140 percent from 2.155 percent and the yield on the 30-year bond was down at 2.350 percent from 2.370 percent.

Bond prices move inversely to yields.

The price of the September futures contract rose to 136.98 yen from 136.75 yen on Tuesday.

($1=108.35 yen)