Nov. 2 (Bloomberg) -- Losses in Japanese government bonds will slow because yields have factored in rising debt issuance, according to Mizuho Asset Management Co.

Ten-year yields climbed 11 basis points last month, the biggest increase since May 2008. Japan will increase annual sales of bonds in the fiscal year ending March 2010 by 2.1 trillion yen ($23.5 billion) to a record 132.3 trillion yen, the Ministry of Finance said on Oct. 30.

“Supply concerns have already been priced into the market,” said Hiroshi Nakamura, manager of the fixed-income department at Mizuho Asset, a unit of Japan’s second-largest banking group. “Room for further yield increases is limited.”

The yield on the 1.3 percent bond due September 2019 fell two basis points to 1.385 percent at 9:16 a.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. Yields reached 1.425 percent on Oct. 30, the highest since Aug. 12, after touching an eight-month low of 1.24 percent on Oct. 6.

Ten-year yields are likely to decline to 1.33 percent by the end of this year, according to a Bloomberg News survey of economists and analysts. The estimate puts a heavier weighting on more recent forecasts. Should these predictions prove accurate, investors who buy the debt today would make a return of 0.6 percent, Bloomberg calculations show.

‘Secure Returns’

“Many financial institutions are continuing to choose bonds to secure returns,” said Jun Ishii, a fixed-income strategist at Mitsubishi UFJ Securities Co. in Tokyo and the top-rated debt analyst in Japan according to Nikkei Veritas newspaper. Yields are already near “the upper range,” he said.

Japan’s four largest life insurers said last month they plan to buy more local debt. Nippon Life Insurance Co., Dai-ichi Mutual Life Insurance Co., Meiji Yasuda Life Insurance Co. and Sumitomo Life Insurance Co. said they will add to domestic bond holdings, opting for safer assets as the world’s second-largest economy recovers from its worst postwar recession.

“We’re still not at a stage where we can increase our bets on asset classes that are riskier,” such as equities, Akinao Nishio, a manager in the investment planning division at Dai- ichi Mutual said in an interview on Oct. 13. “The market is still expecting to hit another bottom, so we have to watch for possible risks.”

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

Last Updated: November 1, 2009 19:30 EST