TOKYO Aug 20 Japanese government bonds inched lower on Tuesday in thin trading, as investors adjusted their portfolios ahead of this session's sale of 40-year debt.
* The Ministry of Finance offered 400 billion yen ($4.08 billion) of 40-year bonds, reopening the current issue with a 1.9 percent coupon.
* The Bank of Japan held a very high 44 percent of the outstanding issuance of the current 40-year issue as of end-July, and "current monetary policy makes it difficult to value the 40-year JGB," strategists at Bank of America Merrill Lynch said in a note to clients.
"Because traders have not built up short positions and the atmosphere is not favourable for holding inventory, we think bids could be limited" at the auction, they said.
* The yield on the benchmark 10-year JGB rose one basis point to 0.770 percent, pulling away from a three-month low of 0.730 percent hit last week.
* Ten-year JGB futures ended morning trade flat at 143.73, after spending the morning session in a narrow range between 143.64 and 143.76.
* Although JGBs have mostly focused on domestic supply and demand factors, a continuing sell-off in U.S. Treasuries has discouraged JGB buyers.
The yield on the benchmark 10-year Treasury notes rose as high as 2.90 percent on Monday. That was its highest since July 2011, and up sharply from 1.60 percent in early May, before the U.S. Federal Reserve started signalling its intentions to pare back its quantitative easing if the economy continued to strengthen.