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Japan Bond Futures Gain Most in 3 Weeks as Auction Demand Rises

Japanese bond futures gained the most in three weeks after demand increased a 2.4 trillion yen ($28.7 billion) auction of five-year securities.

Yields on five-year debt fell to the lowest in a week as the sale drew bids for 3.56 times the amount on offer, up from 3.49 times at previous offering in March. Ten-year bonds rose for a second day amid speculation the Bank of Japan will maintain monetary easing to support the nation’s recovery from last month’s record earthquake.

“Five-year notes were at a good level for banks to start buying in the new fiscal year,” said Satoshi Yamada, who helps oversee about $12 billion as manager of fixed-income trading at Okasan Asset Management Co. in Tokyo. “Monetary easing has held down yields while the economic outlook has deteriorated. Yields are unlikely to rise anytime soon.”

The yield on the benchmark 10-year bond fell 2.5 basis points to 1.29 percent as of 3:17 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price of the 1.3 percent security due March 2021 rose 0.219 yen to 100.087 yen.

Ten-year futures for June delivery gained 0.33 to 139.08 at the afternoon close on the Tokyo Stock Exchange, the biggest gain since March 23.

Debt Sale

The lowest price at today’s five-year auction was 99.84 yen, matching the median forecast in a Bloomberg News survey. That was 0.02 yen below the average price, compared with a difference of 0.03 yen at the previous sale. The so-called tail is the difference between the lowest and average prices. The shorter the tail, the more bids are clustered around the average price.

Five-year yields fell two basis points to 0.525 percent. They earlier reached 0.515 percent, the lowest since April 6.

The difference between two- and five-year yields narrowed to 32.5 basis points, according to data compiled by Bloomberg. The spread was 35.4 basis points on April 12, the widest since Feb. 21.

The BOJ last week established an emergency 1 trillion yen lending facility to help businesses affected by the march 11 earthquake and tsunami. In March, it doubled to 10 trillion yen an asset-purchase program to inject liquidity into markets.

Japanese bonds were also boosted after Treasuries rose yesterday as President Barack Obama vowed to cut $4 trillion in cumulative deficits within 12 years through a combination of spending cuts and tax increases.

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