Nov. 18 (Bloomberg) -- Japanese 30-year bonds fell by the most this month on speculation the government will issue additional debt to help finance economic stimulus measures.

Investors at a meeting in Tokyo today said it will be hard for the government to issue inflation-linked and floating-rate debt because there is low demand, according to Naoyuki Yoshino, chairman of the finance ministry's bond panel. The last time the ministry canceled similar sales, it increased issuance of 20- year bonds by 500 billion yen ($5.2 billion). The government will offer 900 billion yen in 20-year bonds this week.

``Yields on longer-dated bonds are expected to rise given the 20-year bond auction this week,'' said Tatsuo Ichikawa, a senior strategist at RBS Securities Japan Ltd. in Tokyo.

The yield on the 2.4 percent bond due September 2038 rose 8.5 basis points to 2.28 percent at 3 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 1.566 yen to 102.130 yen.

Ten-year yields gained half a basis point to 1.485 percent. A basis point is 0.01 percentage point.

Ten-year bond futures for December delivery advanced 0.05 to 138.61 at the Tokyo Stock Exchange.

Some investors at today's gathering said the Ministry of Finance should increase issuance of notes with up to five years of maturity and boost sales of bonds due in 20- to 40 years, Yoshino told reporters after the meeting.

Japanese lawmakers last month approved a 1.8 trillion yen supplementary budget as part of a stimulus package to spur economic growth. Prime Minister Taro Aso Oct. 30 promised to pump an additional 5 trillion yen into the economy.

Inflation-Linked Bonds

The extra yield 10-year conventional Japanese bonds offer over similar-maturity inflation-linked debt, known as the breakeven rate, was at minus 149 basis points today, according to data compiled by Bloomberg. A negative breakeven inflation rate reflects investor expectations for declining consumer prices over the life of the security.

``An easing of global market pressure, speculation of deflationary risks and BOJ rate cut speculation should foster yield drops,'' Tomoko Fujii, head of Japan economics and strategy in Tokyo at Bank of America Corp. wrote in a report yesterday.

The U.S. five-year breakeven rate was minus 54 basis points and the three-year U.K. breakeven spread was minus 39 basis points yesterday.

Stock Losses

Five-year notes earlier gained as local stocks declined after a U.S. manufacturing report added to evidence that the global economy is slipping into a recession. The Federal Reserve Bank of New York said regional manufacturing contracted in November at the fastest pace on record. A report yesterday showed Japan's economy entered its first recession since 2001.

The International Monetary Fund forecast this month that global growth will slow to 2.2 percent in 2009, from 3.7 percent this year. The organization has said that expansion of 3 percent or less is ``equivalent to a global recession.''

``Given the fundamentals, the buying pressure is becoming dominant,'' said Akihiko Inoue, an analyst at Mizuho Investors Securities Co. in Tokyo. Medium-term debt may outperform bonds with a longer maturity, he said.

The Nikkei 225 Stock Average declined 2.3 percent and the MSCI Asia Pacific Index of regional shares lost 3 percent.

Bonds often move in the opposite direction to stocks. Japan's benchmark 10-year yields had a correlation of 0.79 with the MSCI Index this month, according to Bloomberg data. A value of 1 means the two moved in lockstep.

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

Last Updated: November 18, 2008 01:08 EST