TOKYO, Sept 29 (Reuters) - Japanese government bonds mostly slipped on Thursday, as equities rallied and demand at a two-year auction was modestly weaker than last month's sale of that maturity.
The benchmark 10-year JGB yield added 1 basis point (bp) to minus 0.085 percent, while December 10-year futures ended down 0.05 point at 152.31.
Some bargain-hunting emerged in superlong maturities, with the 30-year yield shedding 2 bps to 0.435 percent in afternoon trading, while the 40-year yield fell 2.5 bps to 0.510 percent.
The two-year JGB yield added 0.5 bp to minus 0.295 percent .
The Ministry of Finance's sale of 2.3 trillion yen ($22.62 billion) of 2-year JGBs with a 0.1 percent coupon produced a highest yield of minus 0.254 percent, with around 52 percent of the bids accepted at the lowest price of 100.710.
The sale drew bids of 3.78 times the amount offered, down from the previous sale's bid-to-cover ratio of 4.44 times.
The tail between the average and lowest accepted prices widened to 0.018, compared with that of last month's offering at 0.004, indicating slightly weaker demand for the bonds.
On Friday, the Bank of Japan will conduct its third buying operations under the central bank's new monetary policy framework announced last week. The first two operations following the policy shift proceeded smoothly, with no significant changes from past moves.
Investors are still trying to determine how much fluctuation the BOJ would like to see around its zero percent target for the 10-year JGB yield, and how it will adjust its operations to meet it.
"The BOJ is sensitive to the fact that any reductions might be interpreted as tapering, so it will likely continue to be very careful with its operations," said a fixed-income fund manager at a Tokyo asset management firm.
Also on Friday, the central bank will announce its bond buying operation plan for October, which could contain clues to the extent the BOJ would like to see the yield curve steepen.
$1 = 101.6900 yen Reporting by Tokyo markets team; Editing by Shri Navaratnam