Japan’s 10-year bonds rose for a fifth day, the longest winning stretch this year, after U.S. Treasury Secretary Timothy Geithner failed to allay concerns the government will struggle to help banks cope with toxic assets. Benchmark 10-year yields fell to the lowest level in two weeks after Geithner told Congress he needs time to work out the details of his strategy to shore up the financial industry. Demand for bonds also increased before a government report next week that economists say will show the Japanese economy contracted the most since the 1974 oil crisis. “Geithner’s comments weren’t supportive and increased people’s fears, so investors are trying to anchor investments in safe products” like bonds, said Keiko Onogi, a debt strategist in Tokyo at Daiwa Securities SMBC Co., one of the 24 primary dealers that are required to bid at debt sales. “Toward Japan’s GDP release, the downside to JGBs will also be limited.” The yield on the 1.3 percent bond due December 2018 fell 4.5 basis points to 1.255 percent as of 1:56 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price advanced 0.394 yen to 100.394 yen. The yield is at the lowest since Jan. 28. A basis point is 0.01 percentage point. Ten-year bond futures for March delivery rose 0.78 to 139.20 at the Tokyo Stock Exchange. The spread between Japanese and U.S. 10-year yields narrowed to 1.44 percentage points yesterday, from 1.67 percentage points on Feb. 9, according to data compiled by Bloomberg. Geithner’s Defense Geithner on Feb. 10 pledged up to $2 trillion in financing for programs aimed at spurring lending and addressing banks’ illiquid assets. He defended the plan during Congressional testimony yesterday, saying it was necessary to move carefully. “I completely understand the desire for details and commitments,” Geithner told lawmakers at the Senate Budget Committee in Washington. “But we’re going to do this carefully, consult carefully, so we don’t put ourselves in the position again” where there are “quick departures and changes in strategy.”. Japan’s gross domestic product for the three months ended Dec. 31 contracted an annualized 11.7 percent, the sharpest slowdown since 1974, according to a Bloomberg News survey of economists. The report is due on Feb. 16. Wholesale prices dropped for the first time in more than five years, the Bank of Japan said in a report today. Producer prices fell 0.2 percent in January from a year earlier, the first decline since December 2003. Commodities Falling commodity prices, coupled with what economists predict may be the deepest recession in almost 50 years, may herald a return to the deflation that plagued Japan for almost a decade until 2005, analysts say. Ten-year inflation-indexed debt is yielding 2.25 percent more than similar-maturity conventional bonds, signaling investors expect consumer prices to decline over the next decade. The securities typically yield less than regular bonds because their principal payments increase at the same rate as inflation. Bonds also rose as stocks slumped, boosting the appeal of government debt as a haven. The Nikkei 225 Stock Average declined 2.6 percent, a third day of losses. Yields declined “following the weaker stocks and stronger U.S. debt,” said Naomi Hasegawa, a senior bond strategist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s largest bank by assets. Japan’s bonds often move in the opposite direction of stocks. Benchmark 10-year yields had a correlation of 0.76 with the Nikkei in the past week, according to Bloomberg data. A value of 1 would mean the two moved in lockstep. Ten-year yields will decline to 1.17 percent by the end of March, according to a weighted Bloomberg News survey of economists and analysts. Should those predictions prove accurate, investors who buy the debt today, will make a 0.9 percent return, according to Bloomberg calculations.

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