By Theresa Barraclough Oct. 28 (Bloomberg) -- Japanese government bonds fell for the first time in six days after the Nikkei 225 Stock Average rebounded from the lowest level since 1982. Ten-year yields also climbed after a decline in the London interbank offered rate, or Libor, eased speculation that a global credit crunch will boost demand for the safety of government debt. The Ministry of Finance sold 800 billion yen ($8.6 billion) in 20-year bonds today. ``Given that Libor has been falling, the risk appetite of some investors has been increasing for assets like stocks,'' said Takashi Nishimura, an analyst in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets. ``The stock sell-off is losing momentum.'' The yield on the 1.5 percent bond due September 2018 rose 3.5 basis points to 1.505 percent as of 1:20 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 0.303 yen to 99.956 yen. Five-year yields gained 3 basis points to 1.01 percent. A basis point is 0.01 percentage point. Ten-year bond futures for December delivery lost 0.57 to 137.58 at the Tokyo Stock Exchange and the Nikkei 225 rose 2.2 percent. The Nikkei 225 had fallen as much as 2.4 percent to 6,994.90 today, the lowest since 1982. Japan's bonds often move in the opposite direction to stocks. Benchmark 10-year yields had a correlation of 0.83 with the Nikkei 225 last week, according to data compiled by Bloomberg. A value of 1 means the two moved in lockstep. The Libor for three-month yen loans fell almost 1 basis point to 0.995 percent yesterday, the lowest this month, according to the British Bankers' Association. Auction Demand Today's auction of 20-year debt bearing a 2.2 percent coupon attracted bids worth 3.52 times the amount offered, up from a so-called bid-to-cover ratio of 2.36 times in September. Last year's ratio was 3.56 times. Twenty-year bond yields fell 1.5 basis points to 2.16 percent after the auction. The lowest price at the sale was 0.08 yen below the average price, compared with a difference of 0.55 yen in September. The so-called tail is the difference between the lowest and the average price. The longer the tail, the fewer bids are clustered around the average price. An increase in the tail may signal that demand at the auction declined. The Ministry of Finance on Oct. 20 said it will increase 20-year bond sales to make up for a reduction in 15-year floating and inflation-linked bonds. The amount of 20-year bond sales per auction will rise to 900 billion yen from 800 billion yen, starting from November. Supply and Demand ``There is a lot of concern about the supply and demand balance,'' said Akihiko Inoue, an analyst at Mizuho Investors Securities Co. in Tokyo. ``Investors such as life insurers bought in the first six month, so they may have no need to buy. This auction will test the demand from domestic investors.'' Nippon Life Insurance Co., Japan's biggest life insurer, said last week it plans to reduce domestic bond holdings by 100 billion yen this fiscal year ending March 31. Meiji Yasuda Life Insurance Co., the third-largest life insurer, also said it will cut investments in Japanese bonds. Daido Life Insurance Co. said today that its investments in yen-denominated bonds will ``decline'' this fiscal year. Bond losses may be limited as traders added to bets the Bank of Japan will cut interest rates this year to spur economic growth. The yen traded at 93.70 per dollar after touching a 13- year high of 90.93 on Oct. 24. ``The stock market is going lower from here and the yen will get stronger, so the BOJ should act more aggressively,'' said Tomohiko Katsu, deputy general manager of the capital market division at Shinsei Bank Ltd. in Tokyo. ``The five-year looks attractive.'' There is a 40 percent chance the BOJ will lower borrowing costs to 0.25 percent from 0.5 percent by Dec. 31, according to calculations by JPMorgan Chase & Co. using overnight interest- rate swaps. The odds were 36 percent yesterday. To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

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