TOKYO, May 7 (Reuters) - Japanese government bond prices tumbled on Thursday, with benchmark futures posting their biggest daily drop in two years, hit by falls in European and U.S. bonds this week while Japanese markets were shut for holidays.
The 10-year JGB futures price fell 0.73 point to 146.77 , the biggest fall since May 2013, while the benchmark 10-year cash JGB yield rose to a two-month high of 0.435 percent .
Relentless falls in German Bunds, other European bonds and U.S. Treasuries worried investors, as a rally in JGBs in the past couple of months had been driven by foreign investors shifting funds to JGBs from low-yielding European bonds.
Signs of a pick-up in the European economy, a warning from Federal Reserve Chair Janet Yellen on a rise in long-term yields, and firmness in oil prices are among the factors blamed for triggering a bond sell-off around the world.
But losses in JGBs were limited compared to other markets, in part because many Japanese investors were ready to buy them on dips.
The 10-year JGB yield was last 0.430 percent, up 7.0 basis points from the previous close on Friday, before Japan's Golden Week holidays. It is still just about 15 basis points above 2 1/2-month low of 0.28 percent hit in late April.
In contrast, the German Bund yield has shot up 60 basis points from a record low of 0.05 percent hit last month.
"I think the JGB market went too far when the 10-year JGB yield fell below 0.30 percent, where only foreign investors and the Bank of Japan were buying," said a fund manager at a Japanese asset management firm.
"Still, given the Bank of Japan's massive bond buying, I wonder if we will have a chance to buy 10-year JGBs above the yield of 0.5 percent," he added.
The BOJ's JGB buying on Thursday attracted limited offers from banks, suggesting there are not many players who needed to dump JGBs for loss-cutting.
(Reporting by Hideyuki Sano; Editing by Eric Meijer)