An auction of 1.9 trillion yen ($16.3 billion) in 10-year JGBs on Tuesday attracted decent bids from primary dealers but worries persisted that investors may not be eager to buy as brokers have hoped.
Japanese stock prices jumped to multi-year highs, raising fears among bond traders that Japanese investors, who have been risk-averse after economic stagnation in the past decade, may finally shift funds to shares from low-risk, low-return bonds.
"With stocks robust, drops in JGB yields will be limited, especially with the Bank of Japan's expected policy shift approaching," said Takafumi Yamawaki, fixed-income strategist at Morgan Stanley.
"I don't expect the market to falter much, but I don't expect it to rebound either."
December 10-year futures fell 0.38 point to 136.72. The benchmark 10-year yield gained three basis points to 1.575 percent. It briefly rose to 1.580 percent, just shy of the one-year high of 1.585 percent hit last month.
Short-term paper was under pressure in particular. The two-year yield rose 1.5 basis points to 0.295 percent, matching a 25-month high hit in mid-October.
The five-year yield gained 4.5 basis points to 0.885 percent. At one point it touched 0.890 percent, a 14-month high hit in October.
The 10-year JGB auction, in a reopening of the current 273rd JGBs, on Tuesday met with decent demand. But the market failed to benefit from the result on worries about demand from investors.
The auction fetched a lowest accepted price of 99.58, slightly above market expectations around 99.53-55.