March 1, 2012 / 7:36 AM / 6 years ago

JGBs mixed as market digests 10-year sale

* Auction in line with most expectations

* 10-yr futures erase earlier gains and edge down

* Foreigners turn net JGB buyers in latest week

By Lisa Twaronite

TOKYO, March 1 (Reuters) - Japanese government bonds were mixed on Thursday, with the day’s 10-year bond auction attracting decent demand but inspiring some investors to take profits.

Japan’s finance ministry auction of 2.2 trillion yen of new 10-year notes drew bids of 3.26 times the amount offered, below the previous auction’s bid-to-cover ratio of 3.72 but better than the average of the past 12 months of 3.10.

The auction’s tail was 0.01, matching last month’s offering, and the lowest price also came in 0.01 point above expectations.

“You can’t say it was an unfavorable auction, though the market did appear heavy and came off its highs,” said Keiko Onogi, senior JGB strategist at Daiwa Securities.

The yield at the lowest price was 0.974 percent.

“The yield is slightly lower than the market expected,” said Naomi Fink, head of strategy at Jefferies Japan.

“Still, stocks are holding up, showing no one is really pulling risk off the table,” she added.

The Nikkei share average edged down on Thursday, underpinning bonds, after surging 10.5 percent in February following the Bank of Japan’s surprise easing that month.

The BOJ’s move also underpinned bond prices, as it said it will spend an extra 10 trillion yen ($125 billion) on JGB purchases of bonds with up to two years left to maturity.

The yield on the latest 10-year JGBs slipped half a basis point to 0.950 percent, edging toward a 14-month low of 0.935 percent hit last month but off an earlier low of 0.945 percent.

Ten-year JGB futures ended down 0.02 point at 142.71, closing well off their session high of 142.83 but holding above support at their 10-day moving average of 142.62.

Longer durations were steady, with the yield on the 20-year note flat at 1.750 percent, up from a low of 1.740 percent.

The market had a muted reaction to data released early in the session showing Japanese companies increased their capital spending by 7.6 percent in the October-December period from a year earlier, better than the median estimate for a 6.5 percent annual decline.

Separate data showed foreign investors turned net buyers of JGBs in the week through Feb. 25, buying 20.8 billion yen, after sales of 660.6 billion in the previous week marked their largest net selling since June 2011.

Japanese investors, meanwhile, resumed their net buying of foreign bonds last week at the highest level since September 2011, snapping up 1.352 trillion yen. (Editing by Richard Borsuk)

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