JGBs extend gains after solid demand at 2-year sale
* Bid-to-cover ratio at 2-yr sale highest since March
* 10-yr futures end higher after touching one-week intraday high
* Japan investors' net sales of foreign bonds hit 14-month high
TOKYO, June 27 (Reuters) - Japanese government bond prices rose on Thursday, lifted by month-end buying by funds as well as strong demand at a sale of two-year notes.
JGBs were also underpinned by a recovery in U.S. Treasuries prices, and expectations the Bank of Japan will conduct its regular bond-buying operations on Friday, market participants said.
The 10-year JGB yield dropped 3 basis points to 0.835 percent, while 10-year JGB futures added 0.44 point to 142.69 after earlier touching a one-week high of 142.77.
"There is no major supply pressure, and the two-year auction went off well," said Maki Shimizu, senior bond strategist at Citigroup in Tokyo.
"There's no reason to sell and at the end of the month, there's a bit of buying," she said, particularly after U.S. data in the previous session rekindled demand for bonds.
An unexpected downward revision to first-quarter U.S. economic growth eased fears that the U.S. Federal Reserve would taper its bond-buying stimulus, which bolstered U.S. debt prices.
"There is a much stronger tone in the market today, after U.S. yields came down overnight after the data," said a fixed-income fund manager at a Japanese trust bank.
"There is also lots of adjustment this week, the last trading week of June, which is providing more support," he added.
Some funds buy longer-dated JGBs near the end of a month to extend the duration of their portfolios.
Japanese investors also have more cash to invest as they repatriate funds after unloading foreign debt.
Ministry of Finance data showed Japanese investors' net selling of foreign bonds hit its highest level in 14 months last week.
Not all of that cash appears earmarked for bonds, however.
Takahiro Mitani, chairman of Japan's public pension fund, told Reuters on Wednesday that he believes the Tokyo stock market has room to rally to catch up with the share prices of the United States and Europe.
The superlong tenor also rose, with the 20-year yield down 1.5 basis points at 1.695 percent and the 320-year yield down 1 basis point at 1.815 percent.
The two-year yield slipped half a basis point to 0.135 percent after being flat for most of the session.
The Ministry of Finance offered 2.9 trillion yen ($29.76 billion)of two-year notes with a coupon of 0.2 percent.
The notes sold at a lowest price of 100.105, in line with market expectations, and drew bids of 5.44 times the amount offered, up from the previous sale's bid-to-cover ratio of 4.82 times and the highest since March. The tail between the average and lowest accepted prices came in at 0.001, shrinking from 0.002 at last month's offering of similar notes.