TOKYO, July 1: Key September 10-year Japanese government bond (JGB) futures closed firmer on Tuesday after easing from their morning highs.

The JGB market rallied in the morning, led by large lot cash buying by public funds at the long end of the yield curve. But hedge selling emerged due to slow sales of newly auctioned six-year JGBs whose prices were set slightly higher than expected, and weighed on the topside, traders said.

The September briefly rose as high as 124.64 by midday, above a key resistance point of 124.41. But it eased to close at 124.36, still up from Monday's 124.10 close. Turnover was 43,296 contracts.

"Apart from buying by some investors this morning, others were mostly absent. Thus, the September eased later in the day due to a lack of follow-through buying," said a dealer at a "Big Four" securities house.

"The auction went well. But the new bond's sales to investors did not go as smoothly as expected because of the high price," he added.

The auction of 1.9 percent six-year JGB produced a lowest price of 100.19 and an average price of 100.22, compared with an expected lowest price of around 100.15 yen. The offering volume was cut to 400 billion yen from 500 billion yen in the previous issue. But the reduction by 100 billion yen was too small to have a big impact on the market, traders said.

"The MOF's reduction in the offering volume in both four-and six-year JGBs may support the market in a long-run. But it will not have an immediate impact," said a dealer at a city bank's securities unit.

The ministry of finance (MoF) said on Tuesday that it would reduce its bimonthly issue volume of both six-and four-year JGBs to 400 billion yen each, from 500 billion yen.

The yield of the benchmark 182nd 10-year JGB was at 2.320 percent at 07:06 GMT, down from 2.375 per cent on Monday.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.