JGBs mostly steady, lack impetus to extend rally
* Expectations of month-end pension funds buying support
* Market cautious of testing resistance ahead of auction next week
* Yield curve seen steepening further on BOJ speculation
* Two-year bond yield falls below 0.10 pct at auction
TOKYO, Nov 27 (Reuters) - Japanese government bond prices were mostly little changed on Tuesday, supported by hopes of month-end buying from pension funds but lacked fresh impetus to extend their rally beyond a key resistance level.
Longer maturities such as 20- and 30-year bonds remained fragile, still smarting from concerns that main opposition party leader Shinzo Abe, seen as a front-runner to become prime minister after an election next month, will push for radical monetary easing.
"I think there's a growing consensus that steepening will continue. At least, it's hard to expect a flattening," said a trader at a Japanese brokerage.
The benchmark 10-year cash JGB yield was flat at 0.730 percent, unable to test the nine-year low of 0.720 percent hit in July.
Although expectations of month-end buying by pension funds supported the market, traders were unwilling to test the 0.720 percent level, partly on caution ahead of the 10-year bond auction next Tuesday.
In when-issued trade, the new 10-year bonds to be offered next month traded at an yield of 0.755 percent on Tuesday.
Many traders were wary of bidding for the new issue below the yield of 0.750 percent, which would likely prompt the Ministry of Finance to lower the coupon rate to 0.7 percent from 0.8 percent in the past six issues.
The 10-year JGB futures prices ticked up 0.02 point to 144.62, but trading volume was nearly 30 percent below the average so far this year.
The 30-year bond yield was unchanged at 1.935 percent while the 20-year bond yield also was flat at 1.6700 percent, both erasing yield falls in early trade.
The spread between 10- and 20-year yields stood at 94.0 basis points, still near a 13-year high of 95.0 basis points hit last week on so-called "Abe trade": bets on radical easing by the Bank of Japan.
The superlong maturities were vulnerable as radical monetary easing might lift inflation, which would undermine bonds' return in real, or price-adjusted terms.
Abe has called for setting inflation target of two percent as well as cutting interest rates to zero or even to sub-zero levels.
On the other hand, many investors feel comfortable buying short-term bonds as further monetary easing is likely to include more buying of short-term bonds.
In the Finance Ministry's auction of two-year bonds, the new bonds maturing in December 2014 were sold at an average yield of 0.096 percent, the lowest level since July.
The strong auction results suggested some market players are starting to price in the chance the Bank of Japan might accept Abe's idea and scrap the 0.10 percent floor on short-term interest rates the central bank has kept in the current easing cycle that started in 2008.
Still, with Japan's election on Dec. 16 still a few weeks away, the market may soon shift its focus back to global issues especially the U.S. fiscal cliff, market players also said.
"I think the 'Abe trade' has run its course for now. Globally bonds will likely be in a holding pattern for the time being, given that U.S. policy makers haven't set schedule for their next talk on fiscal cliff," said Tohru Yamamoto, chief bond strategist at Daiwa Securities.
The market hardly reacted after Greece's international lenders clinched an agreement on reducing the country's debt, as many investors had been expecting policymakers to eventually agree on a deal to avoid Athens defaulting on its payments.
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