June 5, 2012 / 2:01 AM / 5 years ago

JGBs slip ahead of 10-year sale

TOKYO, June 5 (Reuters) - Japanese government bonds fell on Tuesday as investors positioned for the session’s auction of 10-year notes, which is expected to meet decent demand even with benchmark yields not far above 9-year lows.

* Japan’s finance ministry is offering 2.3 trillion yen of 10-year notes. It will also auction 700 billion of 30-year bonds on Thursday.

* “Yesterday, there was some selling by hedge funds ahead of today’s auction, but if banks are decent buyers today, then the auction should go smoothly and reassure the market about supply and demand conditions even with these yield levels,” said a fixed-income fund manager at a Japanese trust bank.

* The 10-year JGB yield added 1.5 basis points to 0.830 percent, after dropping to 0.790 percent in the previous session, its lowest level since July 2003.

* The 10-year JGB futures contract was down 0.16 point at 143.63. On Monday, it rose as high as 144.06, the highest level for the front-month contract since October 2010.

* The current backdrop of global uncertainly should underpin demand, with finance chiefs of the Group of Seven leading industrialised powers slated to hold an emergency conference call later on Tuesday to address the euro zone’s deepening debt crisis.

* Last month’s 10-year auction met solid demand, with a bid-to-cover ratio of 3.74, up from 2.73 at the previous auction. The tail between the average and lowest accepted prices was 0.01, steady from the past four 10-year sales.

Some strategists expect the tail to widen at the latest sale, in light of supply/demand fears and the fact that JGBs have cheapened more than U.S. Treasuries.

“Provided overseas yields do not turn up, the upside in JGB yields should naturally be limited. In this sense, tailing could actually offer an opportunity for dip-buyers,” strategists at Barclays wrote in a note to clients on Tuesday.

* The yield curve steepened slightly on Tuesday, with the 20-year JGB yield adding 2 basis points to 1.655 percent.

* The spread between 10-year and 20-year yields widened to 82.5 basis points, its highest level since April 2011 on a last-traded basis.

$1 = 78.320 yen Reporting by Lisa Twaronite; Editing by Jacqueline Wong

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