Japan’s Bonds Have Biggest 2-Day Drop in 5 Months as Stocks Rise

Japan’s 10-year government bonds had their biggest two-day decline since August after the yen traded near its weakest level in 2 1/2 years and stocks advanced, damping demand for the relative safety of the nation’s debt.

Benchmark yields climbed to the highest level in almost three weeks as rates on Treasuries increased during Asia trading after reports showed the U.S. added jobs and China’s services industries expanded. Japan’s Ministry of Finance will auction 2.4 trillion yen ($26 billion) in 10-year bonds tomorrow, up from 2.3 trillion yen last month.

“It appears that securities firms are selling the 10-year bonds in preparation for the auction,” said Takafumi Yamawaki, Tokyo-based chief rates strategist at JPMorgan Chase & Co., one of the 24 primary dealers obliged to bid at Japan’s debt sales. The weaker yen, stock gains and higher Treasury yields also hurt sentiment for Japanese notes, he said.

The yield on the 10-year note climbed four basis points to 0.805 percent as of 3:57 p.m. in Tokyo from the end of last week, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price of the 0.8 percent security maturing in December 2022 declined 0.367 yen to 99.954. The yield, the highest since Jan. 15, had a two-day gain of 6 1/2 basis points, the biggest increase since Aug. 16.

Ten-year bond futures for March delivery fell 0.38 to 143.68 at the Tokyo Stock Exchange. The Nikkei 225 Stock Average gained 0.6 percent, advancing for a fifth day.

The yen traded at 92.62 per dollar after touching 92.97 on Feb. 1, the weakest since May 2010.

Retirement Fund

Japan’s public pension fund, the world’s biggest manager of retirement savings, may change its asset balance as a new government’s policies could erode the value of local bonds.

Managers of the Government Pension Investment Fund, which oversees about 108 trillion yen in assets, will begin talks in April about reducing its 67 percent target allocation to domestic bonds, President Takahiro Mitani said in a Feb. 1 interview in Tokyo.

Prime Minister Shinzo Abe and the Bank of Japan have pledged to restore economic growth and spur inflation, which will mean higher interest rates, Mitani said.

To contact the reporter on this story: Nobuyuki Akama in Tokyo at akam@bloomberg.net

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

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