Nov. 2 (Bloomberg) -- Japan’s government bonds may rise, after completing the worst month this year, on speculation investors will seek the relative safety of debt in the wake of CIT Group Inc. filing for bankruptcy.

Benchmark 10-year yields are likely to fall from near the highest level in 11 weeks as the 101-year-old commercial lender listed $71 billion in assets and $64.9 billion in debt in a Chapter 11 filing in U.S. Bankruptcy Court for the Southern District of New York. Stocks in the U.S. and Europe dropped at the end of last week.

“Bond buying will be favored given that stocks will drop and investors will want to accumulate positions at the beginning of the month,” said Akihiko Inoue, chief market analyst in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest bank.

Ten-year bond futures for December delivery traded at 138.01 in London from 137.99 at the 3 p.m. close at the Tokyo Stock Exchange on Oct. 30. The contract will open for trading at 9 a.m. Tokyo time.

The benchmark 10-year bond hasn’t traded yet today at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield on the 1.3 percent bond due in September 2019 rose half a basis point to 1.405 percent on Oct. 30, when it touched 1.425 percent, the highest since Aug. 12. Ten-year yields climbed 11 basis points last month, the worst performance since May 2008, according to data compiled by Bloomberg.

Slumping Stocks

U.S. stocks dropped at the end of last week on declines in consumer confidence and spending. The Standard & Poor’s 500 Index slid 2.8 percent on Oct. 30. Nikkei 225 futures traded at 9,750 in Chicago from 10,010 in Osaka yesterday.

Benchmark 10-year yields had a correlation of 0.6 with the Nikkei 225 so far this quarter, according to Bloomberg data. A value of 1 means the two moved in lock step.

Demand for debt may be tempered after Japan’s Ministry of Finance said that it will increase annual sales of government bonds in the fiscal year ending in March 2010 by 2.1 trillion yen ($23.5 billion) to a record 132.3 trillion yen.

Increased sales of one-year bills and five-year notes will begin this month and greater sales of two- and 10-year debt will start in December, the ministry said on Oct. 30.

Japan will sell 2.1 trillion yen in 10-year bonds on Nov. 5.

“There is a still a huge concern surrounding the increases in sales,” said Kazuhiko Sano, chief strategist in Tokyo at Citigroup Global Markets Japan Inc., one of the 23 primary dealers that are required to bid at bond auctions. “With the 10-year auction just around the corner, it’ll take time for investors to turn bullish about bonds.”

The 1.3 percent bond due in September 2019 closed at 99.08 to yield 1.405 percent on Oct. 30, according to the Bloomberg Yen Bond Fixing Price. The level is an average rate set at 6:30 p.m. in Tokyo by Daiwa Securities SMBC Co., Nikko Citigroup Ltd., Mizuho Securities Co. and Mitsubishi UFJ Securities Co.

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

Last Updated: November 1, 2009 18:19 EST