Japan Bonds Fall After Yields Approach Six-Month Low, Machine Orders Climb

Japan’s bonds fell, reversing gains and pushing 10-year yields up from a near six-month low, as a technical indicator signaled the rally in debt was overdone and government data showed an unexpected rise in machinery orders.

Bond futures dropped for the first time in five days after their 14-day relative strength index climbed to 73 on May 13, exceeding the 70 level that some traders see as a sign that an asset’s price is poised to fall. Factory orders rose 2.9 percent month-on-month in March, when Japan was struck by the country’s biggest earthquake on record.

“People have been wary about the high level of bond prices,” said Akitsugu Bandou, a senior economist in Tokyo at Okasan Securities Co., one of the 24 primary dealers obliged to bid at government debt sales. “Consensus among investors is that the economy will pick up once rebuilding boosts demand for goods and services.”

The benchmark 10-year yield added two basis points to 1.135 percent as of 4:02 p.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.1 percent security due March 2021 fell 0.177 yen to 99.690 yen. The yield earlier sank to 1.105 percent, the lowest since Nov. 24.

Ten-year bond futures for June delivery slid 0.12 to 140.70 at the 3 p.m. close of the Tokyo Stock Exchange.

“Traders closed their positions on futures by selling them,” said Okasan’s Bandou. “Profit taking prevailed.”

Economists had estimated a 10 percent drop in Japan’s machinery orders, an indicator of capital spending in three to six months.

40-Year Auction

The Ministry of Finance will sell 400 billion yen ($4.94 billion) in 40-year debt tomorrow. The prior sale of 40-year bonds on Feb. 8 drew bids valued at 2.06 times the amount on offer, compared with the average of 3.34 for the past 10 auctions.

Bonds gained earlier as Japanese shares fell before U.S. data forecast to show the housing market and manufacturing in the world’s biggest economy are struggling to recover.

“Looking around globally, we can see lots of negative factors for the economy,” said Masaru Hamasaki, who helps oversee about $18 billion as chief strategist at Toyota Asset Management Co. in Tokyo. “As a result, bonds get bought.”

The National Association of Home Builders/Wells Fargo sentiment index was 17 this month from 16 in April, according to a Bloomberg News survey before the figures today. Numbers lower than 50 signal more respondents view conditions as poor.

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

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

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