Japan bonds fall after auction; 10-year yield hits 17-year high

By Junko Fujita

TOKYO, Aug 21 (Reuters) - Japanese government bond prices fell on Thursday in choppy trading, with the 10-year yield hitting a 17-year high, as a weaker-than-expected outcome of a liquidity-enhancing auction weighed on sentiment.

The 10-year JGB yield JP10YTN=JBTC was last at 1.61%, its highest level since October 2008. The yield was flat at 1.605% earlier in the session.

Yields move inversely to prices.

The liquidity-enhancing auction for the bonds maturing between five and 15.5 years held earlier in the session was not strong enough, triggering a brief sell-off of the 10-year bonds, said Naoya Hasegawa, chief bond strategist at Okasan Securities.

"As soon as the 10-year bond yield hit a new high, investors bought the bonds," Hasegawa said.

The yield slipped from the high as investors, who were attracted by the yield level, bought the bonds.

However, investors are not in a hurry to buy the bonds ahead of the Bank of Japan's potential interest rate hike, said Hasegawa, leaving the yields swaying between gains and declines in the past sessions.

The 20-year JGB yield JP20YTN=JBTC also rose to 2.655% on Thursday, its highest level since November 1999, and was last at 2.64%, up 0.5 basis point from the previous session.

"The market does not seem to have absorbed the 20-year bonds sold at the auction. That seems to weigh on yields (of) bonds with maturities between 20 and 25 years," said Tomoaki Shishido, senior rates strategist at Nomura Securities.

An auction of 20-year JGBs on Tuesday received bids that were 3.09 times the amount sold, lower than the 3.15 times seen at the previous auction in July.

The 30-year JGB yield JP30YTN=JBTC rose 0.5 bp to 3.18%.

The five-year yield JP5YTN=JBTC rose 0.5 bp to 1.15%.