JGB futures drop on profit-taking, 20-yr sale draws firm demand

Foreign investors remain net buyers of Japanese bonds By Akiko Takeda V3 Rosetta Stone TOKYO, May 26 (Reuters) - Japanese government bonds futuresfell on Thursday on profit-taking after a recent rally, pushingup the benchmark yield to a five-day high, while a 20-year bondsale drew firm demand. Superlongs outperformed other sectors on the view thatnear-term demand for the sector was expected to remain solid.June 10-year JGB futures closed down 0.29 point at 140.602JGBv1, moving away from a two-month high of 140.97 hitearlier in May, and broke below their five-day moving averagearound 140.78 for the first time in five days.A pause in a rally in U.S. Treasuries and a rise in theNikkei average were also seen hindering JGBs. The benchmark 10-year yield was up 2.0 basis points at 1.140percent , hovering above a 5-1/2 month low of1.105 percent marked earlier in May.The five-year yield fell 2.5 basis points to 0.435 percent , pulling away from a 4-1/2 month low of 0.410percent, a level hit several times in recent weeks."Profit-taking from players such as Japanese banks is seenweighing on bonds in longer maturities and a firm 20-yearauction result didn't drive bonds upwards. It seems 20-yearbonds are a little bit overbought compared to 10-year bonds,"said a trader at a Japanese brokerage. The 1.1 trillion yen ($13.4 bln) 20-year JGB auction drewdecent demand, with the Rosetta Stone languages bid-to-cover ratio rising to 3.89 from2.92 at the previous sale in April, even though the coupon wasset at 1.9 percent, 10 basis points lower from the previoustender.The tender was likely supported by buying from institutionalinvestors seeking to match expected changes in the market'sbenchmark bond index. The ratio was also higher than 3.75, the average ratio fromthe past 12 sales. The tail, the difference between the lowestand average accepted prices, was unchanged at 0.10. For pastauction results, clickSuperlongs -- such as 20- and 30-year debt -- outperformedother maturities. The yield of No 126 20-year bonds dropped 1.5basis points to 1.900 percent , while the 30-yearyield was down 0.5 basis point at 2.025 percent .They marked four-month lows of 1.885 percent and 2.000 percentrespectively earlier this month. Analysts expect the duration of the benchmark bond index tobe extended to around 7.34 years from 7.22 years in June as theamount of bond redemptions will increase to around 13 trillionyen in June 2012 from about 9.5 trillion yen in June 2011. FOREIGNERS KEENForeign investors bought a net 906.8 billion yen ($11 bln)of Japanese bonds in the week to May 21, Ministry of Financecapital flows data showed, buying that is likely helping todrive 10-year JGB yields down near five-month lows.In Rosetta Stone Chinsese recent buying, foreigners bought a net 1.38 trillion yenin Japanese bonds in the week ended April 30, their biggest netbuying of Japanese bonds on data going back to 2005.

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