Short-term JGBs slip on oil-driven inflation woes, Iran tensions

TOKYO, March 11 (Reuters) - Shorter-term Japanese government bonds (JGBs) eased on Wednesday, as traders remained wary of inflation risks amid volatile crude oil prices tied to the ongoing U.S.-Israeli war against Iran.

The two-year yield JP2YTN=JBTC, which is most sensitive to Bank of Japan policy rates, rose 0.5 basis points to 1.255%. The five-year yield JP5YTN=JBTC also added 0.5 bps to 1.630%.

Yields move inversely to bond prices.

Japan's finance ministry will auction about 2.5 trillion yen ($15.82 billion) of 5-year maturities later in the day.

"For the time being, the JGB market is likely to proceed cautiously, looking for room for yields to decline while hoping for concessions from Iran," said Ataru Okumura, a senior strategist at SMBC Nikko Securities, said in a report.

"On the other hand, if the Iran war does not fully subside and crude oil prices remain elevated, there is also a possibility that upward pressure on JGB yields will intensify further as (traders) price in the risk of the Bank of Japan falling behind the curve."

U.S. Treasury yields were mixed overnight, coming off early lows after a media report said U.S. intelligence had detected signs Iran may be considering steps to deploy mines in the Strait of Hormuz.

The benchmark 10-year JGB yield JP10YTN=JBTC rose 1.5 basis points to 2.195%.

Other tenors are yet to be traded as of 0049 GMT.

($1 = 158.0000 yen)