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Japan Bond Futures May Rise to ‘Fill’ Gap: Technical Analysis

May 19 (Bloomberg) -- Japanese bond futures may rise to a two-month high as the June contract is likely to “fill in” the price gap left by the previous benchmark, Mitsubishi UFJ Morgan Stanley said, citing trading patterns.

The 10-year contract for June delivery climbed as high as 140.10 last week, leaving it short of the 140.20 closing price for the March security which last traded on March 11, said Katsutoshi Inadome, a fixed-income strategist at the unit of Japan’s largest banking group in Tokyo.

“As the market has a tendency to fill in a gap when the shift in benchmark futures causes a price leap, the June contract has a good chance of reaching the closing price of the March futures,” Inadome said.

The June contract closed at 139.85 yesterday on the Tokyo Stock Exchange. The contract was quoted at 139.10 when trading began on March 12, the day after it became the benchmark. It will open for trading today at 9 a.m. local time.

Daily momentum indicators such as the moving average convergence/divergence, or MACD, and ichimoku charts also signal bond futures will extend gains, Inadome said.

“Any failure of the contract to fill in the price gap may send its back toward the top of the ichimoku cloud at 139.20,” Inadome said.

MACD charts can indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on 9-, 12- and 26-day periods.

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

To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net; Nobuyuki Akama in Tokyo at akam@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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