JGBs fall as market awaits 20-year bond auction

By Junko Fujita

TOKYO, Aug 18 (Reuters) - Japanese government bonds (JGBs) fell on Monday, pushing yields higher to mirror moves in U.S. Treasury yields last week, as investors awaited a 20-year bond auction in the next session.

The 20-year JGB yield JP20YTN=JBTC rose 1.5 basis points to 2.575%, its highest level since July 24.

The 10-year JGB yield JP10YTN=JBTC rose 1.5 bps to 1.575%, its highest since July 28.

Yields move inversely to bond prices.

Market participants are weighing higher U.S. Treasury yields from Friday, and there is caution ahead of Japan's 20-year bond auction on Tuesday, said Keisuke Tsuruta, a senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

The 20-bond auction will witness relatively firm demand as the yield level is attractive, with the gap between 10-year bonds and 20-year bonds hovering around 100 bps JP10JP20=TWEB, said Tsuruta.

Demand from pension funds who want to rebalance their portfolios following a rally in Japanese shares, will underpin the auction, he added.

Both the Nikkei .N225 index and the Topix .TOPX index extended gains from last week to hit record levels on Monday.

The 30-year JGB yield JP30YTN=JBTC rose 2 bps to 3.115%.

The five-year yield JP5YTN=JBTC rose 1 bp to 1.12%.

Two-year JGBs have not been traded as of 0530 GMT.

U.S. Treasury yields rose on Friday, with 10-year yields hitting a two-week high as traders reduced bets that the Federal Reserve will make a larger-than-usual interest rate cut next month. U.S. Treasury yields were also pulled higher by increases in European government bond yields.US/