JGBs mostly firm with 5-year, 20-year auctions in focus
* market shrugs off S&P warning on govt funding risks
* 20-yr yield edges up ahead of Thursday sale
* 10-yr futures end at session high
By Lisa Twaronite
TOKYO, Oct 15 (Reuters) - Benchmark Japanese government bonds were mostly firm on Monday, shrugging off a warning on risks to government funding, but the superlong sector was under slight pressure ahead of a 20-year sale this week.
Standard & Poor's said that Japan's government funding is showing signs of stress as the Bank of Japan pushes the limits of its bond buying programme, and as politics stalls a bill needed to fund this year's budget.
The credit ratings agency maintained Japan's AA minus rating with a negative outlook, saying it didn't expect the stress on government finances to affect the quality of its sovereign debt yet.
The benchmark 10-year yield slipped half a basis point to 0.755 percent.
The 10-year JGB futures contract ended up 0.10 point at a session high of 144.32, just shy of a nine-week high of 144.34 hit on Friday.
On Thursday, the Ministry of Finance will offer 20-year debt after selling 5-year notes on Tuesday.
Demand at the 5-year sale is expected to be strong as the BOJ's monetary policy has pinned yields at the shorter end.
"The yield level is now below 20 basis points, but still, the sector is supported by the BOJ's accommodative monetary policy and also it seems that domestic banks have lots of funds to buy," said Tomohisa Fujiki, interest rate strategist at BNP Paribas in Tokyo.
"We think the auction itself should go fine, but we are not expecting spectacular results, given that the upside for the sector is quite limited at this stage," he said.
The 20-year sale is also expected to be smooth, although demand might not be so strong at the current yield levels, market participants said.
"Last week's 30-year sale was strong, but that doesn't necessarily mean that demand will be there for the 20-year sale," said a fixed-income fund manager at a Japanese trust bank.
"We're probably going to be holding in a range this week, ahead of the auctions and the European meeting," he said.
European Union leaders will hold a summit on Oct. 18-19 and investors will be watching for any signals about the possibility of a Spanish bailout.
Euro zone officials have said Spain could ask for financial aid from the euro zone in November.
Ahead of the 20-year sale, superlong maturities lagged, with yields on 20-year bonds adding half a basis point to 1.655 percent and yields on 30-year debt flat at 1.920 percent.
Yields on 5-year notes were also flat at 0.195 percent.
A weekly gauge of sentiment in the Japanese government bond market improved slightly but remained in negative territory, as most respondents expect rates to trade sideways with domestic supply in focus, a Thomson Reuters survey showed on Monday.
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