TOKYO: Japanese government bonds were mostly flat on Tuesday, supported by short-covering after recent sharp falls as a sell-off in risk assets such as stocks was seen to have petered out for now.
But gains were limited with investors wary about further falls in risk assets that could pressure them to take profits on the view that the euro-zone will take a long time to resolve.
The Nikkei average climbed 1 percent on Tuesday after hopes for more drastic steps to deal with the euro-zone debt crisis and a robust start to the US holiday shopping season boosted global stocks.
Lead 10-year JGB futures were flat at 141.87, off a 4-month low of 141.71 hit on Monday but staying below technical resistance such as their 100-day moving average at 142.28 and a thin Ichimoku cloud on charts at 142.20-50.
Cash bonds were mixed, with the 10-year JGB yield down 0.5 basis point at 1.050 percent while the 20-year yield rose 0.5 basis point to 1.820 percent, but both remain near three-month highs.
Market participants expected the euro-zone crisis to continue to support demand for JGBs, although there are chances of progress with Germany and France stepping up a drive for coercive powers to reject euro-zone members' budgets if they breach EU rules.
Euro-zone finance ministers will meet later on Tuesday to approve detailed operational rules for the region's bailout fund, the European Financial Stability Facility (EFSF), paving the way for the 440 billion euro ($588 billion) facility to draw cash from investors.
Japan's Ministry of Finance set a 0.2 percent coupon on the 2.7 trillion yen ($34.56 billion) of two-year JGBs it is offering on Tuesday, unchanged from the previous sale in October. The MOF releases the auction results at 12:45 p.m (0345 GMT).
Some buyers could hold off due to their relative expensiveness and with a 100 billion yen increase in supply from the previous offering, analysts said, but the new bonds were still expected to be digested smoothly, underpinned by safe-haven bids amid an escalating euro-zone crisis and with expectations that the Bank of Japan will maintain its monetary easing stance.
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