JGBs fall as fiscal concerns cast pall on 30-year auction

By Rocky Swift and Junko Fujita

TOKYO, July 3 (Reuters) - Japanese government bonds fell on Thursday as concerns about stubbornly wide fiscal deficits overshadowed the finance ministry's first auction of super-long debt under a reduced-issuance scheme introduced in response to record-high yields.

Yields on the 40-year JGB JP40YTN=JBTC, Japan's longest tenor, rose 8 basis points to 3.14%, the steepest advance since May 29. The 30-year yield JP30YTN=JBTC jumped 5 bps to 2.935%.

Yields move inversely to bond prices.

The auction was seen as weak by market participants, as the lowest accepted price trailed forecasts and overall bids were not impressive, said Miki Den, a senior Japan rate strategist at SMBC Nikko Securities.

A surge in British super-long yields overnight also damped demand, he added.

Gilts tumbled sharply on Wednesday after the government backed down on welfare reforms, reigniting concerns over the UK's finances.

"Their yields rose on fiscal concerns, and Japan is facing similar issues, which has made investors cautious about buying bonds today,” Den said.

Super-long debt has been under pressure around the world as highly indebted sovereigns struggle to rein in spending. Japan has a debt pile that's more than two times the size of its gross domestic product, the most among major economies.

A 20-year JGB auction in May saw the weakest demand since 1987 and the subsequent sales of 30- and 40-year securities saw subdued uptake in the market.

Yields on Japan's super-long debt surged to record levels as demand plummeted, prompting the government to curtail the issuance of the securities.

The Ministry of Finance sold about 700 billion yen ($4.9 billion) of 30-year JGBs on Thursday, down from about 800 billion yen at the previous auction.

The auction's bid-to-cover ratio, a measure of demand, was 3.58 versus 2.92 in June. The tail, another measure of demand, was 0.31 yen versus 0.49 yen previously.

Prices of the benchmark JGB JP10YTN=JBTC declined, sending its yield up 2.5 bps to 1.45%. The 20-year yield JP20YTN=JBTC rose 3 bps to 2.355%.

($1 = 143.5700 yen)