Japanese government bonds fell, pushing five-year yields up by the most in more than two years, as a rally in stocks and signs the global economy is improving sapped demand for government debt. Ten-year bond futures tumbled the most in nine months, following a slide in U.S. Treasuries as President Barack Obama’s agreement to extend tax cuts boosted the outlook for the nation’s economic recovery. Bonds also slid amid speculation primary dealers reduced holdings before a 2.4 trillion-yen ($28.6 billion) sale of five-year debt tomorrow. “Japan is unlikely to sustain negative growth as long as economies in emerging markets and the U.S. are resilient,” said Ayako Sera, who helps oversee about $310 billion in Tokyo as a strategist at Sumitomo Trust & Banking Co., a unit of Japan’s third-largest banking group. “Bond yields are correcting from levels that were too low.” The yield on the five-year note jumped 10 basis points to 0.515 percent as of 3:49 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 0.3 percent security maturing in September 2015 fell 0.462 yen to 98.999 yen. The daily increase in yields was the steepest since June 11, 2008, according to Bloomberg data. The benchmark 10-year yield climbed seven basis points to 1.24 percent after touching 1.245 percent, the highest level since June 11. The rate has increased more than 40 basis points since falling to a seven-year low of 0.82 percent in October. Ten-year bond futures for December delivery tumbled 1.11 to 140.10 at the 3 p.m. close of the Tokyo Stock Exchange, the biggest decline since March 11, according to Bloomberg data. The Topix Index of shares added 0.9 percent to the highest in five months. Jobless Claims The number of applications for jobless benefits in the U.S. fell to 425,000 last week from 436,000, according to a Bloomberg survey of economists before tomorrow’s Labor Department report. Japan’s Economy Watchers index, a survey of barbers, taxi drivers and others who deal with consumers, advanced to 43.6 in November from 40.2 in October, the Cabinet Office said today. Treasuries plunged yesterday after Obama agreed the day before to extend Bush-era tax cuts for two years, boosting expectations for a speedier economic recovery. The yield on the benchmark 10-year note extended gains in Asian trading, rising 10 basis points to 3.23 percent, the highest since June 22. Japan’s Ministry of Finance has sold 10-year and 30-year bonds this month. The bid-to-cover ratios, which gauge demand by comparing the number of bids to the amount of securities sold, dropped at both auctions. December Auctions “All the auctions in December ended with sorry results, so there are concerns about the sale of five-year debt,” said Keiko Onogi, a fixed-income strategist in Tokyo at Daiwa Securities Capital Markets Co., one of the 24 primary dealers. Primary dealers, companies obliged to bid at government debt auctions, often reduce holdings of bonds before a sale in case prices decline before they can pass on the new securities to investors. China bought 262.5 billion yen more Japanese debt than it sold in October, the first increase in three months, according to a report from the Ministry of Finance. The larger Asian nation bought a record net 735.2 billion yen of Japanese debt in May and sold 2.02 trillion yen in August, the most ever, according to ministry data going back to 2005. To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

Source