Japanese bonds rose, pushing 10-year yields to the lowest level in seven years, before reports this week that economists said will show manufacturing in the U.S. and U.K. slowed. Benchmark 10-year bond futures climbed for a third day after a U.S. report last week showed growth in the world’s largest economy cooled last quarter more than analysts forecast, a sign the global recovery is losing traction. Japan’s Finance Ministry will sell 2.2 trillion yen ($25.4 billion) of 10-year debt tomorrow. “Investors are weighing up the three ‘Ds’ of the global economy: the duration, depth and dispersion of a possible slump,” said Akio Yoshino, chief economist at Tokyo-based Amundi Japan Ltd., which manages the equivalent of $35 billion. “Until answers to the three Ds become clear, the bond market will remain resilient.” The yield on the benchmark 10-year bond dropped 1.5 basis points to 1.04 percent as of 2:05 p.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.1 percent security due June 2020 advanced 0.135 yen to 100.537 yen. The yield was the lowest since August 2003. Ten-year bond futures for September delivery rose 0.18 to 142.02 at the Tokyo Stock Exchange. The contracts climbed to 142.08 on July 22, the highest since Aug. 13, 2003. The Institute for Supply Management’s index for U.S. manufacturing fell to 54 in July from 56.2 the prior month, and Markit Economics’ U.K. manufacturing gauge slid to 57 from 57.5, according to economists surveyed by Bloomberg. China’s manufacturing grew in July at the slowest pace in 17 months, the Federation of Logistics and Purchasing said yesterday. U.S. economic growth decelerated to an annualized 2.4 percent in the second quarter from 3.7 percent the previous three months, a Commerce Department report showed July 30. Yields to Fall “The majority of investors expect 10-year bond yields to fall toward 1 percent,” Shinji Nomura, chief debt strategist at Nikko Cordial Securities Inc. in Tokyo, wrote in a note to clients. “Investors are more likely to stay on the sideline ahead of tomorrow’s auction.” The previous sale of 10-year bonds on July 6 drew bids for 2.76 times the amount on offer, compared with a so-called bid- to-cover ratio of 3.85 in June. Primary dealers, which are required to bid at government debt sales, often reduce holdings of bonds before an auction in case prices fall before they can pass on the new securities. Ten-year yields may rise to 1.3 percent by year-end after investors conclude the so-called three Ds aren’t serious, Amundi’s Yoshino said. Investors buying the debt today would lose 1.8 percent should his forecast prove accurate, according to Bloomberg calculations.

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