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Japan’s Bonds Set for Biggest Drop in 2 Weeks on Auction Results

May 28 (Bloomberg) -- Japan’s government bonds fell, heading for their biggest decline in two weeks, as the nation’s stocks rallied and a sale of 20-year securities met the weakest demand in nine months.

Benchmark 10-year yields were set for the highest close since April 2012 after the government’s offer of 1.2 trillion yen ($11.8 billion) in 20-year debt drew bids for 2.54 times the amount on offer, down from a bid-to-cover ratio of 3.68 at the previous sale. Bank of Japan Policy Board Member Ryuzo Miyao said a better economic outlook could drive yields up.

“Selling dominated after the weak auction,” said Akito Fukunaga, the chief rates strategist in Tokyo at Royal Bank of Scotland Group Plc’s RBS Securities unit, one of the 24 primary dealers that underwrite Japan’s debt. “The bond market has yet to settle down amid concerns of a further sell-off.”

Japan’s 10-year yields increased 7 1/2 basis points to 0.905 percent as of 4:33 p.m. in Tokyo, according to Japan Bond Trading Co. The price of the 0.6 percent note due in March 2023 fell 0.660 yen, or 660 yen per 100,000 yen face amount, to 97.253 yen. A basis point is 0.01 percentage point.

Twenty-year yields climbed four basis points 1.7 percent, while 30-year rates added one basis point to 1.835 percent. Five-year yields gained five basis points to 0.4 percent.

Ten-year bond futures for June delivery slid 0.59 to 141.84 in Tokyo, while the Topix Index of shares rallied 1.2 percent.

Japanese government bonds have fallen 1.3 percent this month as of yesterday, the biggest drop since April 2008, according to Bank of America Merrill Lynch indexes.

To contact the reporter on this story: Yumi Ikeda in Tokyo at yikeda4@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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