JGB prices fall on caution over 10-year bond auction outcome

TOKYO, June 2 (Reuters) - Japanese government bond prices fell on Monday, as the market was cautious about the outcome of an auction for 10-year bonds in the next session.

The 10-year JGB yield JP10YTN=JBTC rose 1 basis point (bp) to 1.51%. The two-year JGB yield JP2YTN=JBTC rose 0.5 bp 0.75% and the five-year yield JP5YTN=JBTC rose 1.5 bps to 1.03%.

Bond yields move inversely to prices.

"The 10-year bond auction will be relatively firm or could be weak as there are uncertainties surrounding the bond market," said Takahiro Otsuka, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

The auction comes as the market is worried that the issuance of shorter-dated bonds may increase in the coming months, as the government will consider trimming the issuance of super-long bonds in the wake of recent sharp rises in yields for the notes.

However, the 10-year yield is hovering near 1.5%, higher than the levels at previous auctions, and that is a positive factor, said Otsuka.

"The market is also cautious about the upcoming upper-house election in Japan next month," said Otsuka.

Because if the ruling party loses the majority, Prime Minister Shigeru Ishiba may resign, and that could lead to a new administration pushing fiscal expansion, he added.

The yield on the 30- and 40-year JGBs hit record highs amid fiscal deficit concerns last month.

On Monday, the 20-year JGB yield JP20YTN=JBTC was flat at 2.41% and the 30-year JGB yield JP30YTN=JBTC fell 1 bp to 2.955%.

The 40-year JGB bonds were not traded, as of 0507 GMT.