JGBs fall as traders book profits, auctions eyed

By Satomi Noguchi

TOKYO, May 12 (Reuters) - Japanese government bond futures fell on Monday as Tokyo's shares rebounded and prompted dealers to lock in profits in JGBs after a surge late last week.

Thin trading volume exaggerated the futures' moves while many market players sat on the sidelines ahead of debt auctions this week.

The Finance Ministry is slated to offer 200 billion yen ($1.94 billion) in 40-year debt on Tuesday. It will be only the second auction of bonds in that maturity after the ministry sold 40-year bonds in November.

"The market does not really know how to prepare for the 40-year debt auction because investor demand is very hard to read beforehand, just like in recent bond auctions," said a trader at a Japanese bank.

JGBs jumped on Friday as investors rushed to buy paper at higher yields after putting a poor 10-year debt sale behind them.

Roiled by a steep sell-off in late April that sent JGB futures tumbling to their biggest one-day drop in five years, investors were cautious buyers at last Thursday's auction of the benchmark 10-year bonds.

June 10-year futures slid 0.35 point to 136.25 2JGBv1, after dropping as low as 136.08. On Friday, the lead contract had soared more than a full point at one stage to as high as 136.86.

Open interest in lead JGB futures has slumped to a near three-year low due to high volatility in the market over the past two months.