JGBs little changed in quiet trade, auction watched

By Rika Otsuka

TOKYO, March 4 (Reuters) - Japanese government bonds were little changed on Tuesday, as dealers sold bonds to hedge against a 10-year debt auction while a fall in stocks prompted investors to seek the safety of government debt.

But activity was subdued as market participants eyed the Ministry of Finance's 1.9 trillion yen ($18 billion) auction of benchmark 10-year JGBs, the main focal point on Tuesday.

The coupon was set at 1.4 percent, below the 1.5 percent at the last month's sale of the same maturity and a level not seen since the Bank of Japan in March 2006 ended its super-loose monetary policy of flooding the banking system with funds to keep interest rates near zero.

Analysts said they expect Tuesday's auction to attract decent investor demand, albeit not robust due to the lower coupon, as investors now expect the BOJ could possibly cut rates this year.

"The market should digest the new debt supply without much problem, although it could take two or three days to do so," said Tetsuya Miura, a bond strategist at Shiko Securities.

"Once the market sees investor demand is not bad, more bond buying is likely to come in," Miura said.

March 10-year futures 2JGBv1 edged down 0.01 point to 138.69. On Monday the lead contract rose as high as 138.93, its highest since a 2-1/2-year peak of 138.94 hit on Jan. 23.

The lead contract fell as low as 136.89 last week, its lowest since late December.