* 20-yr sale's bid/cover ratio is highest since Sept
* 10-year yield slips but remains in recent range
By Lisa Twaronite
TOKYO, June 18 Japanese government bonds rose on Tuesday after a solid sale of 20-year bonds, though the benchmark yield remained in its recent range as investors awaited the outcome of this week's U.S. Federal Reserve meeting.
The Fed will hold a regular meeting on Tuesday and Wednesday this week. JGB yields often track Treasury yields, so Japanese investors will watch for any signs the U.S. central bank is considering slowing its asset purchases.
"The Bank of Japan will continue its own easy policy, so any signal that the Fed is beginning to consider an exit from its easing would indicate a difference in expectations," said Tomohiro Miyasaka, fixed income analyst at Credit Suisse in Tokyo.
The BOJ has pledged to boost inflation to 2 percent in two years, and to this end will double Japan's monetary base. By contrast, a Reuters poll of economists show most believe the Fed will reduce its purchases by the end of 2013, and a significant number expect the Fed to taper its purchases as early as September.
The 10-year yield fell 1.5 basis points to 0.820 percent, still well within its recent trading range of 0.80 to 0.90 percent and moving away from its 13-month high of 1 percent hit on May 23.
The 10-year futures contract ended up 0.24 point at 142.95 after dropping as low as 142.62 in the morning session before the auction results.
Solid demand at the 20-year sale reassured investors that buying interest remains.
The Ministry of Finance offered 1.2 trillion yen ($12.66 billion) worth of 20-year bonds with a coupon of 1.7 percent, up from the 1.6 percent coupon at last month's sale of that maturity.
The notes sold at a lowest price of 100.10, in line with market expectations, and drew bids of 4.23 times the amount offered, up from the previous sale's bid-to-cover ratio of 2.54 times and the highest since September.
The tail between the average and lowest accepted prices came in at 0.10, shrinking from 0.21 at last month's offering.
"Last month's sale met poor demand, suggestion that there were buying needs that went unfulfilled," said a fixed-income fund manager at a Japanese asset management firm.
The yield on the 20-year bond fell half a basis point to 1.680 percent.