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Japan Bonds Fall for Third Week on Stock Gains, Global Recovery

Japanese bonds fell for a third week as gains in shares and signs the global recovery is gathering momentum damped demand for the nation’s government debt.

Ten-year yields climbed to the highest in seven weeks after the European Central Bank raised interest rates on April 7 and left the door open for further increases, while traders added to bets the Federal Reserve will boost its benchmark this year. China cut its holdings of Japanese debt for a fourth month in February, according to a report yesterday from the Ministry of Finance in Tokyo.

“Economic recoveries outside Japan are likely to continue,” said Tetsuya Miura, chief market analyst in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest banking group. “As Europe starts a tightening cycle and the U.S. mulls such a move, the BOJ is being left behind. The bias is for the yield curve to steepen.”

The yield on the 1.3 percent bond due March 2021 rose four basis points to 1.32 percent this week at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.352 yen to 99.824 yen. The yield climbed to 1.33 percent yesterday, the highest level since Feb. 17.

Ten-year futures for June delivery dropped 0.57 this week to 138.62 on the Tokyo Stock Exchange. The Nikkei 225 Stock Average rose 1.9 percent, completing a third week of gains.

Spread Widens

The difference between yields on 2-year notes and 10-year bonds expanded to 111 basis points yesterday, the widest since June. The so-called yield curve plots the rates of bonds of the same quality, but different maturities. It steepens when yields on shorter-maturity notes fall, those on longer-dated debt rise, or both happen simultaneously.

German exports rose 2.7 percent in February from the previous month, when they dropped 1 percent, the Federal Statistics Office said yesterday. U.S. retail sales advanced 0.5 percent in March, according to a Bloomberg News survey of economists before the April 13 report.

The ECB increased its benchmark to 1.25 percent from a record low 1 percent, where it had been since May 2009. The chance the Fed will raise rates by year-end climbed to 36 percent from 33 percent a month ago, federal funds futures contracts showed on April 7.

China sold 169.4 billion yen ($1.99 billion) more Japanese securities than it bought in February, the ministry data showed. China purchased a net 165.2 billion yen of long-maturity bonds, while selling 334.5 billion yen of short-term debt.

“Japan’s securities were relatively expensive,” especially short-term notes, said Yuji Kameoka, chief foreign-exchange strategist at Daiwa Securities Capital Markets Co. in Tokyo. “China’s foreign-exchange reserves have been increasing, and it will have to buy yen-denominated assets in the long-term.”

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