TOKYO: Japanese government bonds slipped on Wednesday as investors prepared for the next session's 20-year sale, with the benchmark 10-year yield hitting a three-week high in thin conditions.
The front-month 10-year JGB futures contract was down 0.08 point at 143.17, after dropping as low as 143.05.
The 10-year bond yield rose 1.5 basis points to 0.870 percent, after rising as high as 0.880 percent, the highest level since May 2. It moved further away from Friday's low of 0.815 percent, the lowest level since July 2003.
"Dealers sold futures, but the main move was in cash bonds," said a fixed-income fund manager at a Japanese asset management firm.
"Nothing the BOJ did was a driver. Megabanks were selling ahead of the auction. Investors need a couple of basis points' adjustment," he said.
The Bank of Japan refrained from policy changes as expected at the end of its two-day meeting. Bank of Japan Governor Masaaki Shirakawa will talk to media later on Wednesday after the meeting.
* The JGB market shrugged off Fitch's move late on Tuesday to cut Japan's long-term foreign currency rating to A plus from AA and the local currency rating to A plus from AA minus, with a negative outlook for both. The ratings agency cited the country's political barriers to passing policy to rein in its debt.
"[The downgrade] didn't have any substantial impact on JGBs so far. The JGB market is positioning itself for tomorrow's 20-year JGB auction, so that's why the superlong end of the curve is trading weaker while the short- and medium-term sectors are steady," said Naomi Hasegawa, senior strategist at Mitsubishi UFJ Morgan Stanley Securities. "It seems that some investors failed to join the recent market rally, so there's decent demand to buy on dips, so we expect fair demand at the auction."
Investors also awaited a meeting of European Union leaders later on Wednesday, who are expected to consider a plan for regional bonds to be jointly underwritten by all euro zone member states, aimed at containing the region's debt crisis.
The 20-year yield gained 2.5 basis points to 1.660 percent, while the 30-year bond yield added 2 basis points to 1.810 percent.
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