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Japan Bonds Rise as Stocks Fall Before U.S. Home Data, Fed Meet

Japan’s bonds rose, driving 10-year yields to a one-month low, as falling stocks and a report forecast to show a drop in U.S. home prices supported demand for safer assets.

Bond futures gained to a three-week high on prospects the Federal Reserve will signal tomorrow that it needs to maintain monetary easing to support the U.S. economy. Bonds also rose as today’s 2.6 trillion yen ($31.8 billion) sale of two-year notes drew stronger demand than some traders had expected.

“The Fed will have to maintain some kind of monetary easing because recent economic data, especially housing-related reports, haven’t been strong enough to initiate tightening,” said Jun Fukashiro, a chief fund manager who helps oversee about $16.7 billion at Toyota Asset Management Co. in Tokyo. “Bonds are being bought.”

The yield on the 1.3 percent bond due March 2021 fell one basis point to 1.215 percent as of 3:01 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price rose 0.088 yen to 100.749. The yield touched 1.21 percent, matching the lowest since March 25. A basis point is 0.01 percentage point.

Ten-year bond futures for June delivery rose 0.17 to 139.80 at the Tokyo Stock Exchange. The contracts reached 139.86, the highest since March 29.

The Nikkei 225 Stock Average fell 1.2 percent, and the broader Topix index dropped 0.8 percent.

The S&P/Case-Shiller index of property values in 20 U.S. cities fell 3.3 percent in February from a year earlier, the biggest year-over-year decrease since November 2009, according to the median estimate of economists surveyed by Bloomberg News. The group releases the data today.

Fed Rate

The Federal Open Market Committee begins a two-day meeting today. The Fed will leave its target rate for overnight lending between banks at zero to 0.25 percent, according to all of the 82 economists in a Bloomberg News survey.

Bank of Japan Governor Masaaki Shirakawa signaled yesterday in an NHK Television interview that he may expand a 3-trillion yen lending program aimed at bolstering growth industries as policy makers step up efforts to rebuild after a record earthquake on March 11.

The central bank will keep its benchmark interest rate at a range between zero and 0.1 percent on April 28, according to all of 13 economists surveyed by Bloomberg News.

“I expect the BOJ to add to monetary easing by July at latest,” Yasunari Ueno, chief market economist in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest bank, wrote in a research note today. “Corporate and household sentiments are unlikely to improve soon, and downside risk for the economy will linger.”

Earthquake Relief

Finance Minister Yoshihiko Noda today said it’s too early to estimate the size of a second supplementary budget to finance earthquake relief. The government last week proposed a first extra budget worth 4-trillion yen that didn’t include new bond issuance.

The lowest price at today’s auction was 99.980 yen, higher than 99.975 yen median forecast by 13 traders in a Bloomberg News survey. The auction drew bids worth 5.13 times the amount on offer, up from a so-called bid-to-cover ratio of 4.77 times at the March sale.

“It was a good auction,” said Satoshi Yamada, chief quantitative analyst in Tokyo at SMBC Nikko Securities Inc., one the 24 primary dealers required to bid at government debt sales. “When yields stay around 0.2 percent, investors consider the notes relatively cheap and buy them.”

Two-year yields fell half a basis point to 0.195 percent.

Japan’s government bonds have handed investors a 0.2 percent return this month, compared with a loss of 0.4 percent this year, according to an index compiled by Merrill Lynch & Co.

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