Japanese bonds rose the most this week since November as signs the global economy is slowing boosted demand for the relative safety of government debt. The benchmark 10-year yield dropped to the lowest level in two weeks after reports showed U.S. wholesale prices dropped more than economist forecast and China’s economic growth slowed. Bonds also advanced this week as the Bank of Japan kept its benchmark interest rate near zero and reduced its economic growth forecast. “The U.S. economic slowdown is becoming clearer,” said Shinji Hiramatsu, who helps oversee the equivalent of $16 billion as senior investment manager at Sompo Japan Asset Management Ltd. in Tokyo. “Along with a decline in the stock market, there is no catalyst for investors to sell bonds.” The yield on the 10-year bond dropped 6.5 basis points this week to 1.085 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.1 percent bond due June 2020 rose 0.580 yen to 100.134 yen. This week’s retreat in yield was the most since the period ended Nov. 13. It fell to 1.065 percent yesterday, matching the lowest since July 1. Ten-year bond futures for September delivery increased 0.45 to 141.66 this week at the Tokyo Stock Exchange. U.S. producer prices slid 0.5 percent last month, the Labor Department said July 15, greater than the 0.1 percent decline forecast by economists surveyed by Bloomberg. China’s economic growth cooled to 10.3 percent last quarter, from 11.9 percent in the previous three months, the statistics bureau said in Beijing the same day. Economies Will ‘Stall’ Minutes of the Federal Reserve’s June meeting released on July 14 showed some officials saw “some risk of deflation.” Deflation enhances the value of the fixed payments from bonds. “Economies are going to slow down and stall for a longer period, especially in the U.S.,” said Satoshi Yamada, chief quantitative analyst in Tokyo at Nikko Cordial Securities Inc. “That means central banks will keep monetary easing for a longer time. I expect investors to keep buying bonds.” The BOJ, which has been grappling with deflation for 12 years, kept its key rate at 0.1 percent on July 15 and cut next year’s growth forecast to 1.9 percent from 2 percent. The Ministry of Finance sold 2.2 billion yen ($24.9 billion) of five-year bonds on July 13 with a lowest price 0.01 yen below the average, half that of the previous auction in June. The so-called tail is the difference between the lowest and the average price. The longer the tail, the less bids are clustered around the average price. “The auction result is resilient, reflecting excess cash that is flooding domestic financial companies,” said Makoto Noji, a senior market analyst at Mizuho Securities Co. in Tokyo. The Finance Ministry will auction 1.1 trillion yen of 20- year bonds on July 22. To contact the reporters on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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