Japanese bonds rose, with 10-year yields dropping to the lowest in seven years, after government reports showed industrial production and household spending declined and the jobless rate unexpectedly increased. The nation’s bonds headed for their best first half since 2005, handing investors a return of 1.8 percent since Dec. 31, according to indexes compiled by Bank of America Merrill Lynch. Ten-year futures rose for a second day as today’s reports added to signs the recovery in the world’s second-largest economy is losing momentum. “The outlook of the global recovery is becoming less rosy,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Inc., which manages the equivalent of $17 billion. “People are more inclined to spend money on fixed-income securities and stay away from riskier assets under such circumstances.” The yield on the 10-year bond dropped three basis points to 1.12 percent, the lowest since August 2003, as of 2:24 p.m. in Tokyo on Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.3 percent security due June 2020 rose 0.272 yen to 101.613 yen. Ten-year bond futures for September delivery rose 0.32 to 141.41 at the Tokyo Stock Exchange. Jobless Rate The jobless rate climbed to 5.2 percent in May from 5.1 percent in April, the statistics bureau said in Tokyo. Economists forecast a drop to 5 percent, a Bloomberg survey showed. Household spending slid 0.7 percent from a year earlier, and industrial production declined 0.1 percent from the prior month, separate government reports showed. Bonds also gained on speculation fiscal consolidation among developed countries will hinder the global recovery after leaders from the Group of 20 nations agreed on the weekend to halve their deficits by 2013. “Given growing concerns over the recovery, the underlying bull trend in the bond market remains intact,” said Kazuhiko Sano, chief strategist in Tokyo at Citigroup Global Markets Japan Inc., a unit of New York-based Citigroup Inc. An index of executive and consumer sentiment in the 16 euro nations fell to 98.1 in June from 98.4 a month earlier and the U.S. Conference Board’s consumer confidence index slid to 62.5 from 63.3 in May, according to surveys before reports today. Fewer Bonds The Finance Ministry said today the government probably sold fewer bonds than forecast last fiscal year as the economic recovery spurred tax revenue. Bond sales likely totaled 52 trillion yen ($586 billion) for the year ended March 31, about 1.5 trillion yen less than forecast, the ministry said in Tokyo. Tax revenue in the period probably reached 38.8 trillion yen, exceeding the government’s estimate by 1.9 trillion yen, Finance Minister Yoshihiko Noda said at a news conference. Final calculations are scheduled to be made next month. The central bank’s Tankan index of sentiment at large manufacturers will climb 10 points to minus 4 in June, according to a Bloomberg survey, the highest since September 2008. Companies will project their first spending increase in three years, the survey of analysts showed. The BOJ will release the Tankan survey on July 1. “While concerns are emerging that the momentum of the global recovery will weaken, it is premature to say this will result in the eventual loss of growth altogether,” said Shinichi Horikawa, who helps to manage the equivalent of $11 billion at Mitsui Sumitomo Kirameki Life Insurance Co., a unit of Japan’s second-largest non-life insurer. “Current yield levels are not sustainable.” To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net.

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