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Japan’s Yields Near 6-Month Low as Europe Crisis Boosts Demand

Japan’s 10-year bond yields were less than two basis points from a six-month low as signs Europe’s sovereign debt crisis is worsening boosted demand for safer assets.

Bonds maintained yesterday’s gains as Greece struggles to complete an austerity plan to tackle its deficit and after the cost to insure its debt rose to a record high. Japan’s bond futures advanced before a report forecast to show U.S. new home sales were unchanged last month, adding to signs the global economic recovery is losing momentum.

“The sovereign issue is lingering in Europe, and economic data are deteriorating in the U.S.,” said Jun Fukashiro, a money manager who helps oversee about $16.6 billion at Toyota Asset Management Co. in Tokyo. “We don’t see a reason to sell bonds.”

The yield on the 1.1 percent bond due March 2021 was at 1.120 percent at 3:05 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price was at 99.823 yen.

The yield reached 1.105 percent on May 16, the lowest since Nov. 24. A basis point is 0.01 percentage point. Ten-year bond futures for June delivery gained 0.03 to 140.82 at the Tokyo Stock Exchange.

The Greek government yesterday endorsed an accelerated asset-sale plan and 6 billion euros ($8.4 billion) of budget cuts. Credit default swaps protecting Greek debt against default rose to a record and the yield on its 10-year bonds increased to a euro-era high.

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U.S. new home sales were unchanged at a 300,000 annual pace in April, according to the median estimate of economists in a Bloomberg News survey of economists before the Commerce Department reports the data today.

Japanese Prime Minister Naoto Kan is facing a backlash from ruling party lawmakers over plans to raise taxes to pay for earthquake reconstruction, stoking concern he will be unable to contain the world’s largest debt.

Kan will find it “difficult” to convince politicians in his Democratic Party of Japan of the need for tax increases when the economy is shrinking, DPJ tax panel head Sakihito Ozawa said in a May 20 interview. Ozawa instead advocated bond sales and central bank purchases of debt -- steps opposed by senior Cabinet members including the economy minister.

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