Japan's Bonds Fall as Global Stock Rally Saps Demand for Debt

Japan's five-year bonds declined after a rally in global stocks and a rebound in industrial production reduced investor appetite for debt.

Demand at a two-year note auction fell to the lowest since August 2006 after U.S. Treasuries completed the biggest two-day slide since 2004 and European debt had the steepest decline in three months. The perceived risk of issuers in the Asia-Pacific region defaulting on their debt decreased today on speculation the Federal Reserve will cut interest rates next month.

``JGBs will be sold off,'' said Xinyi Lu, chief strategist at the international treasury division at Mizuho Corporate Bank Ltd. in Tokyo. ``The Fed is going to cut rates, so people became a little bit optimistic about Japan's economy.''

The yield on the 1.1 percent note due September 2012 rose 1.5 basis points to 1.04 percent as of 5:48 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 0.068 yen to 100.274 yen. The yield on the benchmark 10-year bond was unchanged at 1.485 percent.

Ten-year bond futures for December delivery declined 0.14 to 136.96 as of the afternoon close in Tokyo. The Nikkei 225 Stock Average gained 2.4 percent.
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