TOKYO: Japan's 10-year government bond prices fell on Monday, extending the previous session's weakness after European leaders agreed to bring down the borrowing cost of Spain and Italy and ahead of Tuesday's auction, although longer-dated debt outperformed.
The 10-year JGB yield ticked up 0.5 basis point at 0.84 percent to a two-week high after gaining 1.5 basis points on Friday. Nevertheless, the benchmark yield had fallen 15.5 basis points in April-June to log its biggest fall since July-September 2010.
However, the yield on both 20- and 30-year JGBs dipped 0.5 basis point, to 1.655 percent and 1.875 percent respectively.
"Sentiment changed from the EU summit last week. I don't think anyone's convinced that they solved the problem. Obviously it was a positive surprise," said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch. "And then we had tankan this morning which came out a little bit stronger. I am not too sure the market has taken it in that well."
Fujita said the 10-year yield could be ripe for a correction and may test the 0.9 percent level in the next 10 days, partly as the pressure on the Bank of Japan to ease in next week's meeting has faded slightly.
Japanese manufacturers were less pessimistic about business conditions in the three months to June, the central bank's closely-watched tankan survey showed, a sign that the economy was on track for a moderate recovery despite the pain from Europe's debt crisis and slowing overseas growth.
A Thomson Reuters weekly survey showed sentiment towards Japanese government bonds deteriorated for a third straight week, with the poll's sentiment index skidding to its lowest level since it began in June 2011.
The 10-year JGB futures were down 0.1 point at 143.59, falling below its 20-day moving average.
The Ministry of Finance will auction 2.3 trillion yen ($28.83 billion)worth of 10-year bond on Tuesday.
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