JGBs little changed, 10-year yield near 7-mth high

By Rika Otsuka

TOKYO, May 8 (Reuters) - Japanese government bonds were little changed on Thursday, with the benchmark 10-year yield hovering near a seven-month high, as investors retreated to the sidelines due to a closely watched 10-year debt auction.

JGBs rose in early trade as investors took their cue from a fall in share prices and an overnight rally in U.S. Treasuries.

But the market soon gave up most of its gains, pressured by dealer hedge-selling against the Ministry of Finance's 1.9 trillion yen ($18.2 billion) sale of benchmark 10-year bonds.

The auction is seen as a gauge of demand for government debt about two weeks after JGB futures suffered their steepest one-day drop in five years.

"Market participants do not have a clear sense of where the benchmark yield's fair level should be at the moment," said Katsutoshi Inadome, fixed-income strategist at Mitsubishi UFJ Securities.

"Today's auction is drawing a lot of attention as people need to see the results and moves in the secondary market after the sale to decide where the benchmark yield should be," Inadome said.

June 10-year futures were up 0.06 point at 135.53 2JGBv1.

The lead contract struck five-year peaks around 142.00 in mid-March then plunged to near 134.50 late last month as expectations for a rate cut by the Bank of Japan receded, with some even switching their sights towards an eventual BOJ rate rise.