Nov. 5 (Bloomberg) -- Japanese bonds fell after demand declined at a government offering of 1.9 trillion yen ($19 billion) in 10-year securities.

The sale attracted bids worth 2.28 times the amount offered, down from a so-called bid-to-cover ratio of 2.58 times at the previous sale in October. Five-year government notes fell for two straight days for the first time in three weeks, as gains in Asian stocks reduced demand for debt.

``People are still a little bit cautious'' about bonds, said Yuuki Sakurai, a general investment manager in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion in assets. ``The economy is not doing so well, so the government may have to issue more bonds.''

The yield on the 1.5 percent bond due September 2018 rose 2.5 basis points to 1.53 percent as of 4:13 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 0.215 yen to 99.742 yen.

Five-year yields added 5 basis points to 0.92 percent. A basis point is 0.01 percentage point.

Ten-year bond futures for December delivery lost 0.60 to 137.23 as of the afternoon close at the Tokyo Stock Exchange.

The lowest price at the auction was 0.07 yen below the average price, narrower than a spread of 0.13 yen at last month's auction. The so-called tail is the difference between the lowest and the average tail. The longer the tail, the fewer bids are clustered around the average price.

Stronger Stocks

The Nikkei 225 Stock Average climbed 4.5 percent, after declines in money-market rates encouraged investors to seek higher-yielding assets.

``The market is looking at the equity market and whether the recent recovery will be sustained,'' said Susumu Kato, chief economist in Tokyo at Calyon Securities, one of the 24 primary dealers required to bid at government debt sales. ``This is weighing on the short-end of the market.''

The three-month London interbank offered rate, or Libor, that banks charge each other for dollars, slid 15 basis points yesterday to 2.71 percent, the lowest since June, according to the British Bankers' Association. The Tokyo equivalent for yen, or Tibor, fell by almost 10 basis points yesterday to 0.79 percent, according to the Japanese Bankers Association. Tibor was little changed today.

The Bank of Japan drained 2 trillion yen from the financial system today. Japan's overnight call loan rate was at 0.275 percent in Tokyo, according to broker Tokyo Tanshi Co. The BOJ's target rate is 0.30 percent.

Obama's Victory

Asian stocks gained as Barack Obama was elected the 44th U.S. president. Shares rose on speculation he will strengthen measures to prevent a prolonged recession in the world's largest economy. The MSCI Asia Pacific Index gained 4.4 percent.

``Obama's victory, or political stability, is good for the U.S. stock market and for the reliability of the dollar, which is negative for bonds, especially for U.S. Treasuries,'' said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets, in Tokyo.

Demand for debt waned on speculation the government will issue additional bonds as spending is boosted and taxes cut to help the economy.

Parliament approved a 1.8 trillion yen supplementary budget to fund a first stimulus package on Oct. 16. Japan's Prime Minister Taro Aso on Oct. 30 promised to pump an additional 5 trillion yen into the economy.

`More Negative'

``In this condition, where we are worried about less liquidity, higher risk premium and higher government spending, it's more negative'' for bonds, said Hitomi Kimura, a bond strategist in Tokyo at JPMorgan Securities Japan Co., another primary dealer.

Japan's 20-year bonds yielded 128 basis points more than those on five-year notes yesterday, the most since April, according to data compiled by Bloomberg.

Bank of Japan Governor Masaaki Shirakawa today said his policy board's decision last week to lower borrowing costs by 0.20 percentage point, less than what economists expected, to 0.3 percent wasn't intended to leave room for further reductions.

The size of the reduction ``was the best choice,'' Shirakawa told lawmakers in Tokyo today, adding that ``it was not intended to leave maneuvering room'' for further rate cuts.

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

Last Updated: November 5, 2008 02:31 EST