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Japan’s Bonds Fall for 8th Week on U.S. Recovery Signs, Stocks

Dec. 4 (Bloomberg) -- Japan’s 10-year bonds fell 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 climbed to a five-month high as local stocks rose for a fifth week, U.S. pending home sales increased in October and the Federal Reserve’s Beige Book showed the U.S. economy gained strength across much of the nation. Japan’s 30-year bonds declined on speculation investors reduced holdings to prepare for an auction next week.

“Investors are hesitant to buy bonds now because they may be able to get them cheaper later,” 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. “Market sentiment continues to be negative for bonds.”

The yield on the 1.2 percent bond due December 2020 rose 1.5 basis points to 1.205 percent this week at Japan Bond Trading Co., the nation’s largest interdealer debt broker. A basis point is 0.01 percentage point. The yield was at the highest since June 22.

Ten-year bond futures for December delivery rose 0.31 to 140.88 in Tokyo at the Tokyo Stock Exchange this week, while the Nikkei 225 Stock Average advanced 1.4 percent.

Pending sales of U.S. existing houses unexpectedly jumped by a record 10 percent in October, the National Association of Realtors said on Dec. 2. The Fed’s Beige Book business survey showed on Dec. 1 that hiring improved, manufacturing expanded and retailers anticipated a stronger holiday shopping season.

Losses Limited

Losses in Japan’s government bonds were limited before a report that is forecast to show the nation’s machine orders dropped for a second month in October.

“As domestic sell factors run out, machine orders are coming up next week,” said Akira Terabayashi, a researcher in Tokyo at Norinchukin Research Institute Co., the central bank for Japan’s agricultural, forestry and fishery cooperatives. “I don’t think people can have high expectations for that data.”

Japan’s factory orders, an indicator of capital spending in three to six months, fell 0.1 percent in October after dropping 10.3 percent in September, according to the median estimate of economists in a Bloomberg News survey before the data due Dec. 8.

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.

Lowest Ratio

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.

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

Ten-year yields may rise to 1.3 percent by the end of this month, according to Kokusai’s Kato.

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

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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

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