TOKYO, Aug 14 (Reuters) - Japan's 10-year government bond (JGB) yield recovered from recent lows on Monday as Japanese markets reacted to higher U.S. yields following hotter-than-expected inflation data last week, with JGB five- and 20-year auctions coming later this week.
The 10-year JGB yield rose 3 basis points (bps) to 0.615% after falling to 0.565% last week, its lowest since July 28, and staying low as Japan headed into a holiday on Friday.
U.S. yields, meanwhile, reached a one-week high last week after producer prices surprised to the upside, reigniting fears that price pressure could propel the Federal Reserve to hike rates further this year.
While the bond market digests the news from the United States, there could be more movement than usual, with fewer investors participating this week as many people in Japan take advantage of the summer holiday season, said Makoto Suzuki, senior bond strategist at Okasan Securities.
The summer mood comes ahead of a five-year bond auction on Tuesday and a 20-year bond action on Thursday.
"In this environment... I think there will be another bid to test investor demand, as (it) happened last week at the 30-year auction. So, it's unlikely that yields will fall this week," said Suzuki.
The 30-year bond auction last Tuesday generated much stronger demand than anticipated.
Considering bids on 20-year bonds are already reaching around 1.3% on Monday, Suzuki said the auction on Thursday might also be attractive to investors. Although with the market thinner than usual this week, "rates probably won't rise sharply."
The 20-year JGB yield rose 4.5 bps to 1.305%. The 30-year JGB yield was 4.5 bps higher at 1.590%. The 40-year JGB yield rose 4 bps to 1.765%.
On the short end, the two-year JGB yield was flat at 0.010%, while the five-year yield increased 1.5 bps to 0.2%.
Benchmark 10-year JGB futures fell 0.32 yen to 146.63, with a trading volume of 10,110 lots. (Reporting by Brigid Riley; Editing by Sohini Goswami)
