Japan’s 10-year bonds rose the most in two weeks on speculation yields near the highest level in almost two months encouraged investors to buy the securities. Benchmark bonds gained for the first time in eight days as a technical chart traders use to predict yield changes suggested recent declines in Japan’s 10-year debt were too rapid. Demand for bonds waned after Bank of Japan board member Atsushi Mizuno said the central bank should take “extraordinary” actions to counter the recession, indicating it may consider more steps after buying shares and corporate debt. “Yields are quite high and very attractive,” said Takashi Nishimura, an analyst in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s largest bank by assets. “We’re seeing a rebound from the recent bond bear market.” The yield on the 1.3 percent bond due December 2018 fell 1.5 basis points, the most since Jan. 20, to 1.33 percent at 1:51 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price rose 0.130 yen to 99.738 yen. The yield yesterday reached 1.35 percent, the highest since Dec. 16. A basis point is 0.01 percentage point. Ten-year bond futures for March delivery gained 0.09 to 138.44 on the Tokyo Stock Exchange. The 10-day relative strength index on 10-year yields climbed to 71 yesterday from 53 a week ago. A level above 70 suggests selling of the security may have peaked. “There’s demand from investors to buy on dips,” said Akihiko Inoue, an analyst at Mizuho Investors Securities Co. in Tokyo. “That buying can easily accelerate.” Ten-year yields are likely to fall to 1.17 percent by March, according to a weighted Bloomberg survey of economists and analysts. Should those predictions prove accurate, investors who bought the debt today would make a 1.6 percent return, according to calculation by Bloomberg. ‘Extraordinary’ Steps “It’s important to be ready to act promptly and consider taking policy action that may be considered extraordinary under normal circumstances,” Mizuno said today in a speech in Gifu, central Japan. With interest rates close to zero, the central bank has shifted its focus to buying assets from financial institutions to encourage them to channel funds to companies facing a credit shortage. The bank this week resumed a program to purchase shares held by lenders to help shore up their capital, which has been ravaged by the stock-market rout. Demand for bonds also weakened on concern the supply of debt will rise as governments around the globe step up measures to support the economy and financial markets. ‘Downside Risks’ “Japan’s government bond market appears to still be prone to downside risks rather than resuming a strong advance,” said Masashi Shimominami, a Tokyo-based market analyst at Mizuho Securities. “No one can tell when increases in debt sales will come to an end.” The U.S. government yesterday said it will auction a record $67 billion in notes and bonds next week and will issue seven- year notes for the first time since 1993. Japan’s Ministry of Finance may need to issue a record 38.1 trillion yen ($426 billion) of new bonds in the fiscal year starting April 2011, official calculations show. Still, some investors may buy bonds to match a change in a benchmark index they track to measure performance. Nomura Securities Co. increased the average duration of its Bond Performance Index by 0.06 year to 6.32 years this month, according to the company’s Web site. The extension into March will be longer, said Eiji Dohke, a Tokyo-based chief strategist at UBS Securities Japan Ltd. “Given that the month-end index will increase more than usual, the supply and demand conditions will improve toward the end of this month,” Dohke said. Investors such as Japan’s Government Pension Investment Fund, which runs the world’s largest pool of retirement wealth, use Nomura’s index to help decide their holdings. Duration is a gauge of how much a change in yields affects the price of a bond or debt portfolio.

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