Japan's 10-year bond yield at 17-year high, pressured by super-long yields

By Junko Fujita

TOKYO, Aug 26 (Reuters) - Japan's 10-year bond yield hit a 17-year high on Tuesday, as the market weighed upward pressure on super-long bond yields, which rose to record high levels in recent months.

Yields across the curve are seen rising in coming sessions as the market has revived bets that the Bank of Japan will resume its interest rate hike cycle, while the nation's financial health could weaken depending on the fate of Japan's political leadership.

The 10-year Japanese government bond yield JP10YTN=JBTC hit 1.62%, its highest level since October 2008, and was last flat at 1.615%.

There is a persistent upward pressure on yields on super-long bonds, as some players have been selling bonds with maturity of 25 years, fund managers said.

Those bonds were probably sold by life insurers, which want to book losses ahead of the end of their first half of the business year, said Ryoma Nagatomo, a senior fund manager at Norinchukin Zenkyoren Asset Management.

The sell-off of loss-making bonds is possible now because investors can cover the losses from bonds with profits from Japanese stocks, which rose sharply to record high levels this month, fund managers said.

Yields move inversely to prices.

On Tuesday, the finance ministry held a liquidity enhancement auction for the bonds with remaining maturities of between 15.5 years and 39 years.

The demand was weak, but the market shrugged off the outcome. The 20-year bond yield fell 1.5 basis points to 2.63%, retreating from a session high of 2.65%.

The five-year yield JP5YTN=JBTC was flat at 1.155%.

The 30-year JGB yield JP30YTN=JBTC fell 1.5 bps to 3.195%.

The two-year JGB yield JP2YTN=JBTC inched up 0.5 bps to 0.87%.

The 40-year JGBs had not been traded as of 0543 GMT.