JGBs inch down as investors position for 20-year sale

TOKYO, July 25 Wed Jul 24, 2013 10:51pm EDT

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TOKYO, July 25 (Reuters) - Yields on Japanese government bonds edged higher on Thursday, with the benchmark 10-year yield moving away from a two-month intraday low matched in the previous session as the market tracked weaker U.S. debt prices and positioned for a 20-year auction.

* The Ministry of Finance offered 1.2 trillion yen ($11.98 billion) of 20-year bonds, reopening the current issue with a coupon of 1.7 percent. Auction results will be out shortly.

Last month, the ministry announced that the July and August 20-year sales would both reopen the June issue. It said that any changes to the plan warranted by market conditions would be announced a week prior to the sale.

* "Although we currently think demand is unlikely to be strong enough to push 20-year JGB yields lower, in addition to relative value considerations, we think carry and rolldown makes it interesting to hold the 20-year JGB within a 10-year/20-year/30-year butterfly position," strategists at Bank of America Merrill Lynch wrote in a note to clients.

They added that it was worthwhile to consider holding the position over the short term, given the statistical likelihood of it outperforming after the auction.

* The 10-year yield added 1.5 basis points to 0.785 percent, moving away from 0.770 percent touched in the previous two sessions, which was its lowest since May 14.

* The 10-year JGB futures contract ended morning trade down 0.16 point at 143.63, retreating from a two-month intraday high of 143.85 hit on Tuesday.

* The 20-year yield added 1 basis point to 1.725 percent, while the 30-year yield also tacked on 1 basis point to 1.860 percent.

* On Wednesday, U.S. Treasuries prices were pressured after a sale of $35 billion in new five-year notes met low demand.

* Capital flow data for last week from the Ministry of Finance showed Japanese investors were net buyers of foreign bonds for a third straight week, after purchasing the largest amount since September 2012 in the previous period.

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