September 14, 2017 / 6:49 AM / 10 months ago

JGBs ease on soft 20-year auction, futures hit 3-week low

TOKYO, Sept 14 (Reuters) - Japanese government bond prices dropped on Thursday after an auction of 20-year JGBs attracted subdued demand and as traders continued to wind back safe-haven buying until last week as global risk sentiment improves.

The yield on the 10-year JGBs rose 2.0 basis point to a three-week high of 0.040 percent, rising from a 10-month low of minus 0.005 percent hit on Friday on concerns about North Korea.

The price of the benchmark December 10-year JGB futures dropped 0.17 point to 150.77, their lowest close for the benchmark futures contract in three weeks.

Thursday’s auction of 1.0 trillion yen ($9.05 billion) 20-year JGBs attracted tepid demand. The bid-to-cover ratio dropped to 4.15 from 4.51 in the previous auction while the tail, or the gap between the lowest and average price, widened to 0.06 from 0.03, pointing to cautious bidding.

The 20-year yield rose 1.5 basis point to 0.560 percent , while the 30-year yield briefly rose 2.0 basis points to 0.850 percent, both hitting the highest in over three weeks.

The market also took cues from the weakness in U.S. and European bond market as investors shift funds back to risk assets from the safety of bonds this week as concerns over North Korea and Hurricane Irma eased.

At the short end of the yield curve, the three-month government discount bill yield rose 2.1 basis points to minus 0.135 percent.

An auction of 4.4 trillion yen ($39.83 billion) three-month discount bills also produced mediocre results, with an unusually big tail of 0.0054.

Demand from foreign investors appeared to be soft, traders say, partly because recent tightening in the dollar/yen basis swap spread has made Japanese short-term bills less attractive than before when they are swapped into dollar.

$1 = 110.46 yen Reporting by Tokyo Markets Team; Editing by Sherry Jacob-Phillips

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