JGBs erase losses after strong five-year auction
* 10-yr yield slips to fresh 3-month low * 10-yr futures touch 3-month intraday high * Superlong tenor outperforms By Lisa Twaronite TOKYO, Aug 13 (Reuters) - Japanese government bond prices erased losses on Tuesday after strong demand at a five-year sale, helping the benchmark yield touch a fresh three-month low. Ten-year futures also rose to a three-month high in thin summer trading conditions. The Ministry of Finance offered 2.7 trillion yen ($27.96 billion) of five-year notes, reopening the current issue with a coupon of 0.30 percent. The notes sold at a lowest price of 100.07, and drew bids of 5.51 times the amount offered, up from the previous sale's bid-to-cover ratio of 4.28 times and the highest since October's sale of that maturity. The tail between the average and lowest accepted prices shrank to zero from 0.01 at last month's offering, indicating higher demand for the bonds. "It was stronger than most people had expected," said Naomi Muguruma, senior strategist at Mitsubishi UFJ Morgan Stanley Securities. "Overall, though, cash JGB trade was thin, and will likely be so for the rest of the month," she added. The yield on the benchmark 10-year bond fell as low as 0.730 percent after the auction results, and was last down one basis point at 0.735 percent. Muguruma said she expects the benchmark yield to stick to a range between 70 basis and 80 basis points in the coming weeks, and said hedge-selling ahead of a 40-year sale later this month could put upward pressure on yields as investors position for it. The yield on the 5-year JGB slipped one basis point to 0.275 percent, from 0.290 percent ahead of the sale. Ten-year JGB futures ended up 0.10 point at 144.14, after touching a new three-month intraday high of 144.24 after the auction. Some 20,176 contracts changed hands, above the previous two sessions' volume, but still relatively thin. The superlong sector outperformed in thin conditions, with the yield on the 30-year JGB shedding two basis points to 1.755 percent, its lowest since June 4. The 20-year yield fell 1.5 basis points to 1.640 percent after skidding as low as 1.635 percent, its lowest since June 10. According to International Financing Review, a Thomson Reuters publication, one foreign life insurance firm bought superlong JGBs. JGB investors shrugged off data released early in the session showing Japan's core machinery orders fell in June and companies expect them to fall further in the current quarter, another sign that government stimulus has yet to boost capital spending. Minutes of the Bank of Japan's July meeting released on Tuesday showed concerns about the outlook for expenditures. Most board members agreed that the domestic economy was starting to recover but there were some voices of caution over uncertainty in overseas growth and the outlook for domestic capital spending. One member said potential instability remains in the JGB market. Analysts and market participants say any delay to a planned two-stage sales tax increase could pressure JGBs, as it would send the signal that Japan was no longer committed to putting its fiscal house in order. Prime Minister Shinzo Abe is considering a corporate tax cut as a way to offset the impact of a planned increase in the sales tax, the Nikkei business daily reported on Tuesday.