TOKYO: Japanese government bond prices fell for a second straight day on Tuesday, with equities in favour as investors hope an informal European summit on Wednesday yields progress toward resolving the region's debt crisis.
Investors also continued take profits following the benchmark yield's drop last week to its lowest level in nearly nine years.
The 10-year bond yield rose 1 basis point to 0.865 percent, moving further away from Friday's low of 0.815 percent, which was its lowest since July 2003.
"Bonds are giving back some of last week's gains, but ahead of Greece's election next month, we might not see a 0.9 percent yield on the 10-year bond," said a fixed-income fund manager at a Japanese asset management firm in Tokyo.
The front-month 10-year JGB futures contract ended morning trade down 0.02 point at 143.18.
Greece will hold a vote on June 17, with the country's possible exit from the euro at issue after an election this month led to a political impasse over austerity steps.
The Nikkei stock average gained 1 percent in the morning session.
At Wednesday's informal EU meeting, France's new president Francois Hollande is likely to propose mutualising European debt, to fend off contagion of funding difficulties from troubled euro zone economies.
The yield curve steepened as longer tenors slightly underperformed ahead of a 20-year auction on Thursday.
The 20-year yield gained 1.5 basis points to 1.640 percent. On Friday it fell as low as 1.570 percent, its lowest level since August 2010.
The 30-year bond yield added 2 basis points to 1.80 percent after touching 1.730 percent on Friday, its lowest since September 2010.
The Bank of Japan's regular two-day policy meeting began on Tuesday, with no action expected from the central bank as it continues to gauge the effects of its past easing steps and monitor the European debt situation.
Japanese banks logged a record net sale of 5.02 trillion in JGBs in April, according to data from the Japan Securities Dealers' Association released on Monday.
But trading volume was also at a record high, "suggesting brisk sales and switching activity to take profits," said JGB strategists at Barclays in Tokyo.
Life insurers bought a net 624 billion yen worth of superlong bonds, down from the previous month but in line with their average purchases.
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