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Japanese Bonds Fall for Fifth Week on Weaker Yen, Stock Gains

Nov. 13 (Bloomberg) -- Japan’s government bonds declined for a fifth week as the yen trading near a one-month low helped push local stocks to a second weekly gain.

Benchmark 10-year bonds dropped the most in two months after a government report this week showed U.S. employers added more jobs than economists forecast. The extra yield offered by 20-year bonds over 10-year debt was near the widest in more than two years before an auction of the longer-maturity securities next week.

“In the light of the improved U.S. economy, it’s unlikely central banks in Japan and the U.S. will ease policy further and long-term bond yields will continue to fall,” said Akitsugu Bandou, a senior economist in Tokyo at Okasan Securities Co., one of the 24 primary dealers obligated to bid at the government’s debt sales. “The current levels are a watershed for the bond market. If 10-year yields don’t stop rising here, 1.2 percent will be in sight.”

The 10-year yield climbed 6.5 basis points this week to 0.995 percent at the Japan Bond Trading Co., the nation’s largest interdealer debt broker. That was the biggest increase since the week ended Sept. 3. The 1 percent security due September 2020 fell 0.588 yen to 100.044 yen.

Ten-year bond futures for December delivery lost 0.52 to 142.59 at the Tokyo Stock Exchange.

U.S. employers hired 151,000 workers in October, the Labor Department said Nov. 5, beating all estimates in a Bloomberg News survey. The economy lost 41,000 jobs the previous month.

The yen fell to 82.80 per dollar on Nov. 10, the lowest since Oct. 7. The currency traded at 82.33 as of 3 p.m. in Tokyo yesterday when bond futures stopped trading.

20-Year Auction

The Nikkei 225 Stock Average gained 1 percent this week as the declining yen increased the value of overseas sales at Japanese companies when repatriated.

The Bank of Japan cut its key interest rate to a range of zero to 0.1 percent on Oct. 5 and announced purchases of government and corporate debt to lower borrowing costs and counter the yen’s appreciation. A month later, the Federal Reserve said it would buy an additional $600 billion of U.S. government debt through June.

The spread between yields on Japan’s 20- and 10-year bonds was 90 basis points yesterday, after reaching 90.9 basis points on Oct. 29, the widest since March 2008.

“Twenty-year bonds have a bigger risk of price fluctuation and are more susceptible to selling as a hedge before the auction in these unfavorable surroundings,” Okasan’s Bandou said.

The Ministry of Finance will sell 1.1 trillion yen ($13.4 billion) of 20-year debt on Nov. 18. Primary dealers often reduce holdings of bonds before an auction in case prices decline before they can pass on the new securities to investors.

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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