Japan Bonds Fall on Stocks, Auction; 20-Year Yield at April High

Japan’s bonds declined, sending 20-year yields to an eight-month high, as demand ebbed at a sale of the securities and domestic shares climbed.

The sale of 1.2 trillion yen ($14.3 billion) of 20-year bonds had the lowest demand in four months. Yields on the benchmark 10-year note rose to a one-month high as Japan’s Nikkei 225 Stock Average reached the most since April amid signs U.S. budget talks are progressing.

“Investors are cautious in the midst of the rising yields,” said Naomi Muguruma, a Tokyo-based senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co., one of the 25 primary dealers obliged to bid at government debt sales. “The auction results prompted selling, weighing on the market.”

The 20-year rate climbed as much as three basis points, or 0.03 percentage point, to 1.74 percent, the most since April 9, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield was at 1.725 percent as of 3:45 p.m. in Tokyo. The 30-year rate reached 1.99 percent, the most since April 4, before trading at 1.98 percent.

The benchmark 10-year rate climbed as much as 2 1/2 basis points to 0.76 percent, the highest level since Nov. 15, before paring to 0.755 percent.

The 20-year bonds sold today attracted bids valued at 3.11 times the amount on offer compared with a so-called bid-to-cover ratio of 3.67 in November. It was the least since the 2.38 level seen at the auction in August.

Demand for the safety of government bonds was damped after U.S. President Barack Obama was said to make concessions in negotiations to break the budget impasse.

Obama made a new budget offer that would raise taxes by $1.2 trillion and lift tax rates for households earning more than $400,000 a year, up from a previous threshold of $250,000, said a person familiar with the talks. The president and House Speaker John Boehner are negotiating to avert more than $600 billion in tax increases and spending cuts set to start in January, known as the fiscal cliff.

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