TOKYO: Japanese government bond prices were mostly flat on Wednesday as market players stayed on the sidelines ahead of key events in the euro zone planned for later this week.
The 10-year cash bond yield was also flat at 1.040 percent, keeping below a four-month peak of 1.090 percent hit last week as selling in German bunds spooked JGB investors.
While a failed German bond auction late last month had sparked fears that investors could start dumping Japanese bonds given Japan's indebtness, such worries seem to have abated after last week's successful Japanese bond auction.
Superlongs, such as 20- and 30-year maturities, were softer as broker hedging and position squaring from investors weighed ahead of a 700 billion yen ($9 billion) 30-year JGB auction tomorrow, market players said. The 20-year yield was 1.770 and the 30-year yield was 1.955 percent, both 0.5 basis point higher.
"Investors are not sure how they can reflect the European situation in their portfolios at this point, and it is not the best timing to have an auction of bonds with long duration, but new debt should be digested smoothly with demand from investors," said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.
"People are re-examining if JGBs should be sold based on contagion risks because if they are, there won't be too many places left to put money."
December 10-year futures inched up 0.02 point to 142.19, but March futures, which will become the benchmark contract by Monday at the latest as trading in the December contract will end on Friday, fell 0.07 point to 141.64.
The Nikkei share average rose 0.8 percent on Wednesday on investor hopes that warnings from Standard & Poor's will spur euro zone leaders to agree to strengthen the region's bailout fund.
Standard & Poor's, which on Monday told 15 euro zone member nations that it may cut their debt ratings, followed less than 24 hours later with a second warning shot, threatening on Tuesday to cut the credit rating of Europe's financial rescue fund.
The European Central Bank is expected to cut interest rates and offer ultra-long liquidity operations to support banks when it meets on Thursday.
The meeting will be followed by the European Summit on Friday, which investors are closely watching for signs that leaders will deliver a sweeping solution to contain the region's fiscal problems.
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