Japanese Bonds Fall as U.S. Data, European Debt Accord Sap Refuge Demand

Japan’s bonds dropped, sending benchmark 10-year yields to the highest level in more than seven weeks, as signs of improvement in the U.S. economy sapped demand for the relative safety of government debt.

Bonds declined after a U.S. report yesterday that showed the world’s largest economy grew at the fastest pace in a year and ahead of a report today that economists forecast will show consumer spending rose in September for a third month. Treasury yields surged yesterday after agreements to boost Europe’s rescue fund for indebted nations and write down Greek debt spurred gains in equities.

“Yen bonds are being sold after seeing a rally in stocks and Treasury yields,” said Shinji Nomura, chief debt strategist in Tokyo at SMBC Nikko Securities Inc. “The markets turned to risk-on following the European package. Concern about a possible double-dip recession in the U.S. economy receded after the GDP data.”

Ten-year yields climbed 3 basis points to 1.04 percent as of 3:30 p.m. Tokyo time at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1 percent securities maturing in September 2021 decreased 0.27 yen to 99.64 yen. The yield was the highest since Sept. 5.

Yields on 20-year debt added 2.5 basis points to 1.78 percent.

Ten-year bond futures for December delivery sank 0.4 to 142.12 at the Tokyo Stock Exchange.

Yields on 10-year Treasuries yesterday climbed 19 basis points to 2.4 percent. The Nikkei 225 (NKY) Stock Average jumped 1.4 percent today.

European Measures

European leaders announced yesterday that, in a bid to resolve the euro region’s debt crisis, they had boosted the firepower of the rescue fund for indebted nations to 1 trillion euros ($1.4 trillion) and persuaded bondholders to take 50 percent losses on Greek bonds.

U.S. consumer spending rose 0.6 percent in September after a 0.2 percent increase the previous month, according to the median estimate of economists in a Bloomberg News survey before the Commerce Department releases data today. The U.S. economy grew at a 2.5 percent annual rate in the third quarter, the fastest pace in a year, government figures showed yesterday.

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