By Yoshiaki Nohara Feb. 4 (Bloomberg) -- Japan’s bonds fell, pushing 10-year yields to the highest in almost three months, as signs of a recovery in the U.S. economy damped demand for government debt. Five-year yields climbed to the most in two months after Treasuries slid yesterday on a private report that estimated U.S. companies cut the fewest jobs since January 2008. Figures tomorrow will show the biggest gain in U.S. employment in two years, according to a Bloomberg News survey. “People’s expectations are turning positive for the U.S. employment data,” said Koji Ochiai, a senior market economist in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest bank. “Japan’s bonds are under downward pressure, following the drop in Treasuries.” The yield on the 1.3 percent bond due December 2019 rose two basis points to 1.375 percent as of 3 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.173 yen to 99.348 yen. The yield was at the highest level since Nov. 12. Five-year yields gained 1.5 basis points to 0.54 percent, the highest since Dec. 1. Ten-year bond futures for March delivery dropped 0.27 to 138.80 at the Tokyo Stock Exchange. Japan’s yield curve steepened as the spread between 2- and 10-year securities widened to 1.22 percentage points today, the most since May 2006, according to data compiled by Bloomberg. A yield curve is a chart that plots the yields of bonds of the same quality, but different maturities. It steepens when yields on shorter-maturity notes fall, those on longer-dated bonds rise, or both happen simultaneously. U.S. Jobs Data “Investors don’t need to buy bonds in a rush before the U.S. jobs data tomorrow,” said Takafumi Yamawaki, a senior strategist in Tokyo at BNP Paribas Securities Japan Ltd., one of the 23 primary dealers required to bid at the government’s debt sales. “Still, there are lingering expectations bonds could be bought with 10-year yields approaching 1.4 percent.” The U.S. added 15,000 workers last month after losing 85,000 in December, according to a Bloomberg News survey ahead of the Labor Department’s report. U.S. companies cut 22,000 jobs in January, the fewest in two years, ADP Employer Services reported yesterday. Ten-year Treasury yields rose six basis points to 3.71 percent yesterday, according to BGCantor Market Data. Nakamura Comment Demand for Japan’s short-term notes was underpinned after Bank of Japan board member Seiji Nakamura today reiterated that the central bank will maintain a very accommodative monetary policy. Downward pressure on prices won’t easily go away, Nakamura said at a business meeting in Fukuoka, western Japan. “As consumers expect chronic deflation, Japan’s bonds are in a favorable environment for investors compared with foreign markets,” Makoto Noji, a senior market analyst at Mizuho Securities Co. in Tokyo, wrote in a research note today. Consumer prices excluding fresh food fell 1.3 percent in December from a year earlier, the statistics bureau reported on Jan. 29 in Tokyo. That was a 10th-straight decline. Deflation, a general drop in prices, enhances the value of the fixed payments from bonds. To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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