March 3 (Bloomberg) -- Japanese bond futures fell for a fifth day, the longest decline since October, after a 10-year sale drew the lowest demand in 10 months on expectations the economy will rebound from a recession.

Ten-year bond yields have risen almost a quarter percentage point in a month as stocks rallied. The Nikkei 225 Stock Average rose for a sixth day, its longest winning streak in more than four years. A U.S. report tomorrow may show the fastest jobs growth since October, helping fuel demand for Japanese exports.

``I'm hesitating to buy bonds now,'' said Yasunori Kuroda, who helps manage yen fixed-income investments in Tokyo at Sompo Japan Insurance Inc., which holds the equivalent of $48.3 billion in assets. ``Stocks look strong as the economy is showing a sign of recovery.'' Sompo Japan is the nation's third-largest casualty insurer.

Ten-year bond futures for March delivery fell 0.18 to 137.82 as of the close at the Tokyo Stock Exchange. Bond futures last dropped for a fifth day in the period ended on Oct. 5.

The benchmark 1.3 percent bond due in December 2014 fell 0.083 to 98.251 as of 4:42 p.m. in Tokyo, according to Japan Bond Trading Co. Its yield rose 1 basis point to 1.505 percent, after climbing to 1.515 percent, matching the highest since Nov. 9. A basis point is 0.01 percentage point.

The 1.9 trillion yen ($18.1 billion) auction drew bids worth 2.62 times the amount of debt on offer, compared with 65 times last month.

Bond yields have risen every day since a report on Feb. 28 showed industrial production increased in January.

Premium Shrinks

The extra yield U.S. 10-year notes offer versus their Japanese counterparts narrowed to 2.87 percentage points from 2.91 percentage points at the start of the week, according to data compiled by Bloomberg. The average for the past year is 2.76 percentage points.

Investors ``may not be aggressive about buying new bonds from brokers after the auction,'' said Yuuki Sakurai, a general manager for financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., the eighth-largest Japanese life insurer. ``The worst is over for Japan's economy.''

Sakurai said he will probably wait until 10-year yields rise close to 1.6 percent before buying. Fukoku Life holds about $46.5 billion in assets.

Japan's economy will probably grow 1.2 percent in the fiscal year starting April 1, according to the median forecast of 11 economists surveyed by Bloomberg News released on Feb. 18. Gross domestic product contracted in the last three quarters of 2004.

The U.S. economy probably added 225,000 jobs last month, according to the median forecast of 68 economists surveyed by Bloomberg. Overseas sales account for a 10th of the Japanese economy.

1.5 Percent

The Ministry of Finance set a 1.5 percent coupon on the new 10-year bonds, the highest since December.

``I'm maintaining a buy recommendation,'' said Makoto Yamashita, a Tokyo-based economic strategist at UFJ Tsubasa Securities Co., one of the 26 primary dealers invited to discuss bond sales with the Ministry of Finance. ``A 1.5 percent coupon bond looks attractive.''

Demand also declined on speculation the central bank will reduce the amount of money it is pumping into the economy. Adding funds is the tool the bank used in March 2001 to bring its benchmark interest rate to near zero percent.

Yields on Japanese government bonds, or JGBs, have risen since central bank Governor Toshihiko Fukui on Feb. 28 suggested they reflect ``excessive'' expectations for how long the bank will keep adding money.

Fukui is ``basically saying `Don't just load up on JGBs thinking we're going to have zero rates forever,''' said Pawan Kalia, a trader at West LB Securities Co., a subsidiary of Germany's third-biggest state-owned bank.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net.

Last Updated: March 3, 2005 02:44 EST