JGBs dip on Treasuries ahead of 10-year auction

By Masayuki Kitano

TOKYO, Aug 5 (Reuters) - Japanese government bonds edged lower on Tuesday and 10-year yields pulled up from the previous day's four-month lows after a dip in U.S. Treasuries, as traders braced for a key bond auction later in the day.

But losses were limited, with JGBs supported by mounting worries that the domestic economy may have entered a downturn, market players said.

While JGBs could be held back in the near term due to caution before policy meetings by the U.S. Federal Reserve and the European Central Bank, sharp sell-offs seem unlikely, said Tetsuya Miura, bond strategist for Shinko Securities.

"Japan's economy is weak, so while such factors might temper falls in JGB yields, they probably will not be enough to trigger a change in the market's trend," Miura said.

September 10-year JGB futures fell 0.19 point to 136.82 2JGBv1, pulling away from a four-month high of 137.03 hit in evening session trading on Monday.

The benchmark 10-year JGB yield rose 2.5 basis points to 1.520 percent JP10YTN=JBTC, having risen off a four-month low of 1.495 percent hit on Monday.

U.S. Treasuries dipped on Monday as investors focused on the latest inflation data, Tuesday's Federal Reserve policy meeting, and upcoming supply. [US/]

Market players were awaiting the Federal Reserve's policy decision due on Tuesday and its post-meeting statement. After that attention will turn to the ECB's policy meeting on Thursday.

The Finance Ministry was auctioning 1.9 trillion yen ($17.56 billion) in 10-year JGBs with a coupon rate of 1.5 percent, down from 1.7 percent at the previous 10-year auction in July.

Even though JGBs look a bit pricey at current yield levels, there seem to be few concerns about the level of demand at the auction, said Miura at Shinko Securities.

One supportive factor, at least for JGB futures, was some positive signs on technical charts, Miura said.

If JGB futures 2JGBv1 rise to around 137.05, that would fill a gap on daily charts that opened up in late April. If the gap is filled, there may be no major resistance for JGB futures until around 138.15, Miura said. (Editing by Chris Gallagher)