Oct. 19 (Bloomberg) -- Japanese government bonds may rise for the first time in almost two weeks as losses in global stocks spurred gains in European and U.S. debt.

Benchmark 10-year yields are likely to slide from a three- week high on speculation local shares will slump after a gauge of U.S. consumer confidence trailed economists’ estimates. Japan’s Ministry of Finance will sell 1.1 trillion yen ($12.1 billion) in 20-year bonds tomorrow.

“Bonds will be firmer today,” 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 auctions. Overseas bonds gained and “JGBs will follow,” he said.

Ten-year bond futures for December delivery traded at 138.93 in London from 138.88 at the 3 p.m. close at the Tokyo Stock Exchange on Oct. 16. 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 1.5 basis points, or 0.015 percentage point, to 1.33 percent on Oct. 16, the highest level since Sept. 24. The yield may decline to 1.285 percent this week, Citigroup’s Sano said.

Nikkei 225 Stock Average futures traded at 10,210 in Chicago from 10,270 in Osaka on Oct. 16 after the Standard & Poor’s 500 Index slipped 0.8 percent.

Benchmark 10-year yields had a correlation of 0.77 with the Nikkei 225 Stock Average in the past month, compared with a relationship of 0.22 the prior four-week period, according to Bloomberg data. A value of 1 means the two moved in lock step.

20-Year Auction

Yields on 10-year German bunds fell one basis point on Oct. 16 to 3.29 percent and U.S. Treasury yields declined five basis points to 3.41 percent. The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 69.4 from 73.5 in September, which was the highest in more than a year.

Japanese debt has handed investors a return of 0.2 percent so far this year, according to indexes compiled by Merrill Lynch & Co. That compares with a loss of 2.8 percent for holders of Treasuries and 1.4 percent return for investors of bunds.

Any gains in bonds may be limited before Japan’s Finance Ministry offers 20-year bonds tomorrow. Primary dealers tend to reduce their debt holdings before a sale in case they fail to pass on the new securities.

The prior sale on Sept. 15 attracted bids worth 3.03 times the amount on offer, compared with a so-called bid-to-cover ratio of 3.42 times at the August offering.

The 1.3 percent bond due in September 2019 closed at 99.78 to yield 1.325 percent on Oct. 16, 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: October 18, 2009 19:38 EDT