April 25 (Bloomberg) -- Government bonds worldwide are heading for their first monthly loss since June, as rising commodity prices stoke inflation and bankers say the seizure in credit markets is easing.

Yields on Japanese government bonds due in five years rose the most today since 1999 after consumer prices surged 1.2 percent in March from a year earlier. U.S. Treasury notes due in 2010 posted their biggest two-week decline since 2001 as traders add to bets the Federal Reserve will stop cutting borrowing costs after its April 30 meeting. European Central Bank President Jean-Claude Trichet said yesterday euro-region interest rates at a four-year high were adequate for curbing price growth.

``Some people seem to be thinking the credit crisis is coming to an end,'' said Ciaran O'Hagan, head of interest-rate research in Paris at Societe Generale SA, France's second- largest bank. ``The market had been expecting rate cuts from the Fed and they've been almost totally priced out, while in euro land, investors are expecting rate hikes.''

Government bonds have lost 1.3 percent in April, indexes compiled by Merrill Lynch & Co. showed. The last time the securities declined was in June, when they fell 0.5 percent. The drop is the steepest since July 2003, when they shed 1.9 percent.

The two-year U.S. Treasury note yield rose to a three-month high of 2.50 percent, before closing at 2.42 percent in New York, according to bond broker BGCantor Market Data. It has risen 68 basis points in the last two weeks. Yesterday's government auction of $19 billion of five-year notes drew the least demand since 2003.

Japanese Bonds

The yield on the 0.8 percent Japanese bond due in March 2013 jumped 17 basis points today, the most since June 1999, to 1.23 percent, according to Japan Bond Trading Co., the nation's largest interdealer debt broker. Ten-year Japanese bond futures dropped as much as 1.8 percent, forcing the Tokyo Stock Exchange to order a 15-minute halt in trading for the first time since September 2002.

Yields on 10-year German notes, a benchmark government security for Europe, climbed for a second week, to 4.18 percent. U.K. gilts also rose for a second week.

Argentine benchmark dollar bonds sunk to an eight-month low today after Economy Minister Martin Lousteau resigned amid a surge in inflation and disputes with farmers over export taxes.

Standard & Poor's cut the outlook on the country's debt ratings to negative from stable, saying the resignation of Lousteau ``reflects the government's rejection of policies to correct the country's overheating economy.''

The yield on the South American country's 8.28 percent bonds maturing in 2033 jumped 52 basis points to 10.85 percent, according to composite data compiled by Bloomberg.

End of the Cycle

``There's been quite a shift in bond-market sentiment over the past few weeks,'' said Nick Stamenkovic, a fixed-income strategist at RIA Capital Market Ltd. in Edinburgh. ``The market has become increasingly confident that the worst is over for the financial sector and that the Fed is nearing the end of its easing cycle.''

Some traders anticipate fewer rate reductions into Treasury prices on speculation policy makers are concerned that lower borrowing costs will stoke inflation. Consumer prices in the U.S. rose at a 4 percent annual pace in the 12 months through March.

Demand for fixed-income securities also waned as investor appetite for riskier assets improved. The MSCI Asia Pacific Index of stocks has returned 6.9 percent this month, while the Standard & Poor's 500 Index has advanced 5.8 percent.

The cost of protecting corporate bonds against default fell to the lowest in three months today as the $76 billion of capital banks raised worldwide in April buoyed confidence.

`Panic Mode'

``The markets are moving from the panic mode of a month or six weeks,'' said Andrew Bell, head of research and strategy at Rensburg Sheppards Plc in London. ``Part of the panic of being really risk-averse in equities was to pile into the short end of the Treasury market.''

Futures contracts on the Chicago Board of Trade show there's a 28 percent chance the Fed will keep the U.S. target rate for overnight bank lending on hold at 2.25 percent on April 30, up from 2 percent a week ago. The balance of the bets are for a quarter-point reduction. The odds of a half-point cut are zero, compared with 28 percent a month ago.

Government bonds rallied as writedowns and credit losses tied to mortgage defaults totaled more than $300 billion since the start of 2007.

U.S. notes ended their advance in April after the Fed cut interest rates six times and arranged lending programs to increase trading in the money markets.

Credit Crunch Abating

Citigroup Inc. Chief Executive Officer Vikram Pandit said April 22 that the global credit-market contraction, which contributed to the rally in government bonds, is abating.

Pandit's comments echoed remarks by Jamie Dimon, his counterpart at JPMorgan Chase & Co., who said April 16 that the credit-market freeze is more than half over. Richard Fuld, CEO of Lehman Brothers Holdings Inc., Goldman Sachs Group Inc. head Lloyd Blankfein and Morgan Stanley chief John Mack have offered similar assessments.

Inflation expectations in the world's largest economy have risen over the past month, yields indicate.

Ten-year Treasury Inflation Protected Securities yield 2.33 percentage points less than regular U.S. Treasuries, versus 2.25 points on March 25. The difference reflects the pace of price increases traders expect over the next decade.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

Last Updated: April 25, 2008 16:29 EDT