Nov. 10 (Bloomberg) -- Japan's five-year notes fell for a second day on speculation dealers sold the securities to protect against potential losses at an auction of the debt tomorrow.

Yields on the securities climbed to the highest in more than a week after a government report today showed machinery orders rose in September for the first time in four months. The Ministry of Finance will sell 1.9 trillion yen ($19.2 billion) in five-year debt tomorrow.

``The market will head lower before the five-year sale,'' said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd., a Japanese unit of the world's biggest bank by assets. ``Although there was a rate cut, demand for five-years has not been good.''

The yield on the 1.2 percent note due September 2013 rose 2.5 basis points to 0.94 percent as of 9:26 a.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 0.118 yen to 101.206 yen.

Ten-year yields added 2 basis points to 1.53 percent. A basis point is 0.01 percentage point.

Ten-year bond futures for December delivery fell 0.50 to 136.90 at the Tokyo Stock Exchange.

Five-year yields advanced 5 basis points in the week after the Bank of Japan reduced its overnight lending rate by 0.2 percentage point to 0.3 percent on Oct. 31. The yields fell 12 basis points in the week following the central bank's interest rate-cut in March 2001.

Equipment orders, an indicator of capital spending in the next three to six months, rose 5.5 percent from August, the Cabinet Office said today in Tokyo. Economists surveyed predicted a 5 percent increase.

Primary dealers, which are required to bid at government debt sales, tend to reduce holdings of bonds before auctions in case prices decline before they can pass on the new securities to investors.

The prior sale on Oct. 16 drew bids for 3.04 times the amount on offer, compared with a so-called bid-to-cover ratio of 3.16 at the September sale. Last year's average ratio was 3.46.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

Last Updated: November 9, 2008 19:28 EST