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Japan’s Bond Futures Fall as Stock Gains Cut Demand for Debt

JAPAN - Japan’s bonds fell as stocks advanced on speculation Federal Reserve interest-rate cuts and efforts to increase lending will keep credit-market losses from widening.

Ten-year note yields rebounded from near the lowest in 2 1/2 years as JPMorgan Chase & Co. quadrupled its offer for Bear Stearns Cos., boosting U.S. banking and insurance shares. Japan’s Ministry of Finance got the least bids this year for a sale of 1.7 trillion yen ($16.9 billion) in two-year securities today. The Nikkei 225 Stock Average extended gains after reaching the weakest in March since August 2005.

``The rebound in stocks puts downward pressure on bonds,’’ said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities Co. in Tokyo. ``An overly pessimistic view about financial institutions looks to be unwinding now.’’ Ten-year bond futures for June delivery lost 0.15 to 140.50 as of the 3 p.m. close on the Tokyo Stock Exchange. The Nikkei 225 Stock Average gained 2.1 percent.

The yield on the 1.4 percent bond due March 2018 was unchanged at 1.25 percent, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell to 101.33 yen from 101.331 yen.

Demand for the relative safety of government debt waned as the Dow Jones Industrial Average yesterday climbed 1.5 percent. The MSCI Asia-Pacific index of regional shares rose for a third day, gaining 2.9 percent.

Economic Slowdown Japan’s bonds typically move in the opposite direction to stocks. Benchmark 10-year yields had a correlation of 0.72 with the Nikkei 225 this year, according to data compiled by Bloomberg. A value of 1 would mean the two moved in lockstep.

The decline in bonds may be limited on speculation reports in Japan and the U.S. will show confidence among businesses and consumers are still deteriorating.

Sentiment may have fallen to the lowest level since 2003, the Bank of Japan’s Tankan quarterly report is forecast to show April 1. An index of the largest manufacturers is expected to slide to 12 points in March, from 19 in December, according to a Bloomberg News survey of economists.

A U.S. industry report today will show U.S. consumer confidence fell to a five-year low this month, according to a separate survey.

``Gains in yields may be limited as fundamentally the situation hasn’t changed,’’ said Hajime Takata, a chief bond strategist at Mizuho Securities Co. in Tokyo. ``Concern over Japan’s economic outlook remains.’’ Buy Five Year Investors should buy five-year notes and sell 20-year debt, said Alessio Caldarera, a fixed-income strategist at BNP Paribas Securities Japan Ltd. in Tokyo.

The difference in yield between five- and 20-year bonds narrowed to about 1.23 percentage points, near the least on a closing basis in almost three weeks, Bloomberg data show.

The Ministry of Finance sold the two-year notes with a 0.6 percent coupon. The auction drew bids worth 2.82 times the amount offered, the lowest so-called bid-to-cover ratio this year, according to Bloomberg data.

``It was a little bit worse than expected,’’ said Susumu Kato, chief economist in Tokyo at Calyon Securities, one of the 26 primary dealers required to bid at government debt sales. ``A 0.6 percent coupon may not be attractive for investors.’’