JGBs rise as investors cover short positions after rally

By Junko Fujita

TOKYO, Aug 5 (Reuters) - Japanese government bonds (JGBs) rose on Tuesday as investors bought the debt to cover short positions after prices rose sharply in the previous session.

The 10-year JGB yield JP10YTN=JBTC fell four basis points (bps) to 1.465% even as an auction on the day for bonds with the same maturity witnessed a weak outcome.

Yields move inversely to bond prices.

"The yields fell as market players bought back bonds after the yields tanked in the previous session," said Miki Den, a senior Japan rate strategist at SMBC Nikko Securities.

JGB yields fell the most in more than three months on Monday after data showed the U.S. economy created fewer jobs than expected, increasing the odds of the Federal Reserve cutting interest rates at its September meeting. JP/

Tuesday's 10-year bond auction was weak, as the lowest accepted price was lower than the market forecast, and the tail, or the gap between the lowest and average price, widened to 0.14 yen from 0.03 yen at the auction last month.

At the latest auction, unidentified buyers bought a significant portion of the debt, suggesting there was a strong demand from pension funds which wanted to rebalance their portfolios, said Den.

Yields on bonds with other maturities also fell to track the decline of U.S. Treasury yields.

The two-year JGB yield JP2YTN=JBTC fell 1 bp to 0.75%. The five-year yield JP5YTN=JBTC fell 2 bps to 1.005%.

The 20-year JGB yield JP20YTN=JBTC fell 4 bps to 2.51%.

The 30-year and 40-year bonds were not traded as of 0448 GMT.