Japan Bonds Drop for a Third Day as Recovery Signs, Shares Curb Safety Bid

Japanese bonds fell, sending 10-year yields to a six-month high, as signs the worldwide economic recovery is gaining momentum curbed demand for safer assets.

Yields rose for a third day after a report showed Japan’s economy grew faster in the third quarter than initially estimated and before data forecast to show fewer Americans filed claims for jobless benefits. Bonds also slumped as Japanese stocks climbed to a seven-month high.

“When the U.S. macro economy improves, the heart of Japan’s export sector, electronics and cars, will improve,” said Junichi Makino, a Tokyo-based senior economist at Daiwa Institute of Research Ltd. “Long-term bond yields are on the upward trend.”

The yield on the benchmark 10-year bond increased four basis points to 1.27 percent as of 4:06 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.2 percent security due December 2020 lost 0.354 yen to 99.378. The yield reached the highest level since June 4. A basis point is 0.01 percentage point.

Ten-year bond futures for March delivery retreated 0.08 to 139.12 at the 3 p.m. close of the Tokyo Stock Exchange. The Nikkei 225 Stock Average gained 0.5 percent to the highest close since May 14.

Japan’s gross domestic product grew at an annualized 4.5 percent rate in the three months ended Sept. 30, faster than the 3.9 percent reported last month, the Cabinet Office said today. The number of applications for jobless benefits in the U.S. fell to 425,000 last week from 436,000, according to a Bloomberg survey of economists before today’s Labor Department report.

Japan’s GDP

Bank of Japan board member Yoshihisa Morimoto said today upside and downside risks for the economy are “generally balanced.”

Bonds briefly gained, sending yields on the 10-year security down more than 4 basis points on the day. Today’s GDP data showed the deflator, a gauge of prices across the economy, fell 2.4 percent in the third quarter from a year earlier. Deflation, or a general drop in prices, enhances the value of fixed payments from bonds.

“I expect deflation to persist for a substantially long time,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo.

The relative strength index for Japanese 10-year yields crossed above 70 today, a threshold some traders see as a sign an asset’s value is poised to change direction.

The benchmark five-year yield gained 3.5 basis points to 0.545 percent after surging yesterday by the most since June 11, 2008. The Ministry of Finance sold 2.4 trillion yen ($28.6 billion) of the securities today. The bid-to-cover ratio, which gauges demand by comparing the number of bids to the amount of securities sold, dropped to 2.78 from 3.93 in November.

The ministry has sold 10-year and 30-year bonds this month. The bid-to-cover ratios dropped at both auctions.

To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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