Japan’s Yields Near 1-Week High on Stock Gains, Recovery Signs

Japan’s 10-year yields were near a one-week high after stocks gained and a report showed sentiment among large manufacturers improved, adding to signs the nation’s economic recovery remains on track.

Demand for the relative safety of government debt also waned on speculation primary dealers will cut their debt holdings to prepare for a sale of 20-year bonds this week. The Bank of Japan is forecast to keep interest rates on hold at the end of a two-day policy meeting starting today.

“I remain optimistic about Japan’s economic fundamentals,” said Akihiko Inoue, chief market analyst in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest bank. “Bonds have been overbought and yields are bound to go up.”

The yield on the 1.3 percent bond due June 2020 rose half a basis point to 1.235 percent at 10:13 a.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.045 yen to 100.578 yen.

The yield touched 1.245 percent on June 11, the highest since June 4. A basis point is 0.01 percentage point.

Ten-year bond futures for September delivery dropped 0.01 to 140.33 at the Tokyo Stock Exchange. The Nikkei 225 Stock Average rose 1.7 percent and the Topix index gained 1.3 percent.

Ten-year yields may rise to 1.4 percent by the end of September, according to Mizuho Investors’ Inoue. Should his forecast prove accurate, investors who buy the securities today will incur a 1.1 percent loss, Bloomberg calculations show.

Sentiment Improves

An index of sentiment among Japan’s large manufacturers increased to 10 points in the current quarter, up from 4.3 points last quarter, the government said in Tokyo today. The survey asks respondents whether conditions improved from the previous quarter, and a positive number means optimists outnumber pessimists.

The Ministry of Finance will sell 1.1 trillion yen ($12 billion) of 20-year bonds on June 16. Primary dealers, which are required to bid at government debt sales, often reduce holdings of bonds in case prices decline before they can pass on the new securities to investors.

The central bank will keep the benchmark interest rate at 0.1 percent tomorrow, according to all 14 economists in a Bloomberg News survey.