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Japan Bond Futures to Extend Two-Year Rally on Support: Technical Analysis

Japanese bond futures may extend a rally after holding above a level of so-called support for more than two years, Mizuho Investors Securities Co. said, citing trading patterns.

Ten-year bond futures have maintained a rising trend since reaching a low of 132.05 on June 13, 2008. They have stayed above a support line connecting lows of 135.47 on June 11, 2009, and 138.06 on April 7, 2010. Support is an area where buy orders may be clustered.

The benchmark for 10-year futures will change tomorrow to the March 2011 security from the contract for December delivery. The March contract closed at 140.43 yesterday, so futures will not likely fall sharply below the support line at about 140.30 following the switch, said Akihiko Inoue, the Tokyo-based chief strategist at the unit of Japan’s third-largest bank.

“Futures will maintain an uptrend even if they temporarily drop after the shift in benchmark futures,” Inoue said.

The market is beginning to see 1.2 percent as a key level for 10-year bond yields, which will likely limit declines in the March futures contract, Inoue said.

Futures tend to fill in the price gap left by the previous benchmark within several trading days after the change, and “a rise to the 141 level is on the horizon," Inoue said.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

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