TOKYO: Japan Government bonds were mostly flat on Wednesday, with any gains capped by broker hedging, while position squaring from investors weighed ahead of a 10-year auction on Thursday.
The benchmark 10-year JGB yield was unchanged at 1.065 percent, matching a three-month high hit earlier this week after falling as low as 1.055 percent.
"Although stocks are down today, gains in JGBs are limited as a 10-year JGB auction is scheduled for tomorrow," said a trader at a US brokerage.
"While longer-dated maturities were expected to be supported by index following players' month-end purchases, gains are subdued because investors are staying on the sidelines after recent sharp falls in JGBs."
Japan's Ministry of Finance will offer 2.2 trillion yen of 10-year bonds on Thursday.
Lead 10-year JGB futures ended the morning session flat at 141.73 after falling to 141.68, their lowest since July 29.
A trader at a Japanese bank said that foreign speculative players are betting that JGBS will continue to fall as the euro zone crisis affects core countries like Germany, raising the risk that JGBs could be sold to cover losses on other assets.
Futures will be under pressure as Japanese investors shorten the duration of their portfolios to reduce risks, said the trader at a Japanese bank.
On Tuesday, a 2.7 trillion yen($34.7 billion) auction of two-year JGBs drew moderate demand, with the lowest accepted price better than market expections.
While the euro zone sovereign debt crisis has supported the JGB market as investors seek safety, some market participants are wary that increasingly volatile global markets could push up yen yields and trim unrealised profits in their bond portfolios.
Analysts expected tensions in financial markets to keep mounting ahead of an EU summit on Dec 8-9.
The Nikkei share average fell nearly 1 percent on Wednesday, reversing two days of gains as worries over the euro zone spread and it looked likely that the International Monetary Fund would take a more active role in stemming the crisis.
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