Japanese Bonds Decline as Recovery Signs Damp Demand for Debt

March 8 (Bloomberg) -- Japan’s 10-year bonds fell for the first time in three days as signs the global recovery is gaining momentum hurt demand for the safety of government debt.

Ten-year bonds extended last week’s drop after a report showed Japan posted a wider-than-expected current-account surplus in January, signaling overseas consumption is buoying the economy. Demand for bonds also waned as stocks gained following a U.S. report last week that showed the world’s biggest economy lost fewer jobs than economists forecast.

“The better U.S. employment data is a factor weighing on bond prices,” said Masaru Hamasaki, chief strategist at Tokyo- based Toyota Asset Management Co., which oversees the equivalent of $14 billion.

The yield on the 1.4 percent bond due March 2020 rose one basis point to 1.315 percent at the 11:05 a.m. morning close in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.089 yen to 100.750.

Ten-year bond futures for March delivery dropped 0.05 to 140.14 at the Tokyo Stock Exchange.

The Nikkei 225 Stock Average gained 1.8 percent to 10,551.30. The yen fell 0.2 percent after slumping the most in three months on March 5.

‘Hard to Buy’

“The advance of the Nikkei to above 10,500 and the weak yen makes it hard to buy bonds,” said Takafumi Yamawaki, a senior strategist in Tokyo at BNP Paribas Securities Japan Ltd., a unit of France’s largest bank.

Japan posted a current-account surplus of 899.8 billion yen ($9.95 billion) for January, the Ministry of Finance said in Tokyo. The surplus was forecast to be 783.9 billion yen, according to a Bloomberg News survey. Exports grew at the fastest pace in more than 30 years in January and industrial production rose the most since May, reports showed last month.

“Yields are likely to rise given the better-than-expected U.S. payrolls,” said Jun Ishii, chief fixed-income strategist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s largest banking group. The 10-year rate will probably rise to 1.325 percent today, Ishii said.

Ten-year U.S. Treasury yields climbed eight basis points to 3.68 percent on March 5 after the Labor Department said payrolls dropped by 36,000 last month, less than the 68,000 decline predicted by economists.

The extra yield offered by 10-year Treasuries over similar-maturity Japanese debt expanded to 2.38 percentage points today, the widest since Feb. 22.

“The JGB market is likely to react to the snapback in U.S. yields following last Friday’s stronger-than-expected U.S. employment data,” Chotaro Morita, head of fixed-income strategy research at Barclays Capital, wrote in a note to clients.