Japan Bonds Drop for Eighth Week on U.S. Recovery Signs, Stocks

Japan’s 10-year bonds declined for an eighth week, the longest stretch since April 2006, as signs the U.S. economic recovery is gaining momentum damped demand for the relative safety of debt.

Benchmark 10-year yields were at a five-month high as local stocks headed for a fifth-weekly gain and before data that may show U.S. employers added jobs for a second month. Japan’s 30-year bonds completed a weekly loss on speculation investors reduced holdings to prepare for an auction next week.

“Investors don’t want to make big moves today before the U.S. jobs data,” said Akio Kato, Tokyo-based team leader for Japanese debt at Kokusai Asset Management Co., which runs the $36.6 billion Global Sovereign Open fund. “They are hesitant to buy bonds now because they may be able to get them cheaper later. Market sentiment continues to be negative for bonds.”

The yield on the 1.2 percent bond due December 2020 rose half a basis point to 1.205 percent as of 3:01 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.045 yen to 99.955 yen. A basis point is 0.01 percentage point.

The yield is at the highest since June 22 and has increased 1.5 basis points this week.

Ten-year bond futures for December delivery fell 0.06 to 140.88 as of the afternoon close at the Tokyo Stock Exchange.

U.S. Jobs

U.S. payrolls rose by 150,000 in November after increasing by 151,000 the previous month, according to a Bloomberg News survey of economists before today’s Labor Department report. Earlier this week, a report by ADP Employer Services showed businesses added 93,000 workers to payrolls in November, the most in three years.

“Upcoming U.S. jobs data are likely to weigh on investor appetite to buy new 10-year bonds on dips with 1.2 percent yields,” Kazuhiko Sano, chief strategist at Tokai Tokyo Securities Co., wrote today in a note to clients.

An auction of 10-year bonds on Dec. 1 drew bids for 2.41 times the amount on offer, the lowest so-called bid-to-cover ratio since July 2009.

The Ministry of Finance will sell 600 billion yen ($7.2 billion) of 30-year securities on Dec. 7. 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. Thirty-year rates gained 2.5 basis points to 2.105 percent this week.

Japan’s government bonds have handed investors a 1.8 percent return this year, according to an index compiled by Merrill Lynch & Co.

The Nikkei 225 Stock Average rose 0.1 percent today and advanced 1.4 percent this week. Treasury 10-year yields yesterday climbed above 3 percent for the first time since July.

Japan’s 10-year yields may rise to 1.3 percent by the end of this month, according to Kokusai’s Kato. Should his forecast prove accurate, investors who buy the securities will incur a 0.8 percent loss, Bloomberg calculations show.

Analysts surveyed by Bloomberg News expect yields to be 1.06 percent at the end of this year. The estimate puts a heavier weighting on more recent forecasts.

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