Japan's 10-year bond yield hits 29-year high as inflation worries resurface

By Junko Fujita

TOKYO, May 13 (Reuters) - Japan's 10-year government bond yield jumped to a fresh 29-year high on Wednesday as inflation worries returned after oil prices rose overnight and as market players weighed supply of new bonds in the coming weeks.

The 10-year JGB yield JP10YTN=JBTC rose 4 basis points (bps) to 2.580%, its highest since May 1997. The jump came after an auction of bonds with same maturity on Tuesday saw moderately firm demand.

"Demand at the auction was stronger than market expectation, but it is questionable whether that was based on real needs as there was a significant number of unidentified bids," said Shuichi Osaki, a senior portfolio manager at Meiji Yasuda Asset Management.

"Market players are cautious about betting on bonds ahead of a series of auctions this month."

The finance ministry will hold a 30-year bond auction on Thursday, followed by a five-year bond auction on Friday. It will hold a 20-year bond auction on May 20 and a 40-year bond auction on May 28.

Oil prices rose for a third straight day on Tuesday as hopes faded for a Middle East peace deal to get ships moving through the Strait of Hormuz.

Bonds with other maturities had not been traded, as of 0042 GMT.