TOKYO: Japanese government bond prices were mixed on Tuesday, failing to track gains in US Treasuries the previous day as market players turned cautious ahead of a 10-year JGB auction later in the week.
Ten-year debt came under slight pressure ahead of Thursday's 2.2 trillion yen ($29 billion) offering in the maturity, with most market players regarding a 0.95 percent 10-year yield as major resistance that is unlikely to be broken before the sale.
The 10-year yield rose 0.5 basis point to 0.960 percent , off a 14-month low of 0.935 percent hit earlier this month.
"It's not clear whether investors are ready to buy 10-year bonds beyond a yield of 0.95 percent," said a trader at a European brokerage.
Japan's dire fiscal conditions are also preventing investors from buying JGBs aggressively, with Prime Minister Yoshihiko Noda expected to have a tough time pushing through a fiscal reform agenda built around proposed hikes in the country's sales tax.
"Some hedge funds have been selling JGBs on fiscal worries about Japan. Many have already tried this strategy and lost money, however, but that doesn't mean there is no reason to be concerned," said a trader at a Japanese bank.
Shinji Nomura, chief fixed income strategist at SMBC Nikko Securities, thinks the market could see more selling pressure in March, when Noda is likely to face a major showdown in parliament as he needs to pass budget-related bills for the next financial year from April by the end of March.
Ten-year JGB futures edged down 0.05 point to 142.62.
Other maturities were mostly unchanged. The 20-year yield stayed flat at 1.720 percent and the five-year yield was unchanged at 0.330 percent.
The market expects decent demand at a 2.7 trillion yen two-year JGB auction on Tuesday. The Finance Ministry offered the notes with a 0.1 percent coupon, the same as last month.
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