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Japan’s Longer Bonds Decline as Demand Falls at 30-Year Auction

Japan’s bonds declined, lifting 30-year yields the most in more than two weeks, as demand fell at an auction of the securities today.

Longer-term bonds led the retreat as the bid-to-cover ratio, which gauges demand by comparing the number of bids to the amount of securities sold, dropped to 2.95 from 5.4 at the previous auction. The Ministry of Finance auctioned 600 billion yen ($7.27 billion) of 30-year debt today and will sell 1.1 trillion yen of 20-year bonds on Dec. 14.

“There may be some concern about the 20-year debt auction after the result of today’s sales,” said Akitsugu Bandou, a senior economist in Tokyo at Okasan Securities Co. “Because of the amount issued, the auction next week draws attention.” Okasan is one of the 24 primary dealers obliged to bid at government debt sales.

The yield on the 30-year bond jumped six basis points to 2:19 percent as of 4:05 p.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 2 percent security due September 2040, lost 1.056 yen to 96.575 yen. The increase in yield was the most since Nov. 18.

The 20-year yield climbed four basis points to 2.04 percent and the benchmark 10-year rate rose one basis point to 1.17 percent. Ten-year bond futures for December delivery dropped 0.27 to 141.21 at the 3 p.m. close of the Tokyo Stock Exchange.

At today’s auction, the lowest accepted price was 96.4, compared with the 96.6 estimated by traders in a Bloomberg News survey.

Bonds also slumped after a private survey showed more U.S employers plan to boost payrolls at the start of 2011, easing concern demand for Japanese-made products will shrink in the country.

U.S. Jobs

Milwaukee-based Manpower Inc., the world’s second-largest provider of temporary workers, said today its employment gauge for January through March 2011 rose to the highest level in more than two years.

The U.S. was Japan’s second-biggest export market after China by the value of products shipped during the six months ended September, according to Japan’s Ministry of Finance.

The decline in bonds was tempered on speculation a widening yield spread between 10-year and two-year debt will attract investors to the longer-maturity securities. The yield premium investors demand to hold 10-year bonds instead of two-year notes has widened to 99 basis points from a low of 72.5 basis points on Oct. 6.

“Ten-year bonds are increasingly undervalued,” said Okasan’s Bandou.

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