TOKYO, Feb 21 (Reuters) - Japanese government bond prices gained on Wednesday, in anticipation of strong demand at a 20-year JGB auction the following day.
The 10-year JGB yield fell 0.5 basis point to 0.055 percent, while the 20-year yield dropped 0.5 basis point to 0.560 percent.
Traders had been initially cautious ahead of Thursday's auction of 1 trillion yen ($9.28 billion) 20-year JGBs.
But there is growing optimism the auction will be supported by strong demand, as investors see JGBs as more stable than foreign bonds, because of the Bank of Japan's heavy buying.
Indeed, the BOJ's purchase of JGBs with maturities of more than one year to ten years on Wednesday attracted limited selling, underscoring tight supply-demand conditions of the market.
The 40-year JGB yield dipped 1.0 basis point to 0.910 percent, its lowest level since January last year.
The price of 10-year JGB futures rose 0.06 point to 150.78.
($1 = 107.71 yen) (Reporting by Tokyo Markets Team; Editing by Biju Dwarakanath)