TOKYO: Japanese government bond prices fell on Tuesday, with the benchmark futures breaking a six-day winning streak, as market players tried to make room for a 10-year bond auction.
The Ministry of Finance set the coupon rate on its 2.3 trillion yen ($28 billion) offer of 10-year bonds at 0.7 percent, the lowest level for 10-year paper since June 2003.
The 10-year JGB futures fell fell 0.08 point to 144.79. The contract had hit a 9 1/2-year high of 144.91 on Monday as JGBs have been supported by concerns that the Japanese economy may be slipping into a recession.
With the exception of the longest maturities, the market have been bolstered by expectations that a likely change in the Japanese government in the Dec. 16 election could lead to more political pressure on the Bank of Japan to take more aggressive easing steps.
Opposition leader Shinzo Abe, a front-runner to become prime minister after the Dec 16. election, has called for unlimited easing to achieve inflation of two percent.
The 10-year JGB yield ticked up 0.5 basis point to 0.705 percent, still not far from 9 1/2-year low of 0.695 percent hit last week.
"Superlong" bonds such as 20- and 30-year bonds, underperformed, as speculation of aggressive monetary easing discourages investors from buying these maturities.
The 20-year yield rose 1.0 basis point to 1.685 percent , with the yield spreads between 10- and 20-year yields rising to 98 basis points, near record high of 101 basis points in hit in June 1999.
"If today's auction doesn't go well, there will be more pressure on 30-year bonds, ahead of the 30-year bond auction on Thursday," said Naomi Muguruma, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.
JGBs also took cues from softness in US Treasuries on Monday due to hopes of a success in Greece's debt buy-back and data showing a modest recovery in the Chinese manufacturing sector.
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