Japanese 20-year bonds dropped for a second day amid speculation the easing of monetary policy will stoke inflation in the U.S. and boost yields globally. Benchmark 10-year bonds headed for a weekly gain before a government report that economists said will show the U.S. unemployment rate rose for a second month. The difference in two-year yields between U.S. and Japanese bonds narrowed yesterday to the least since December 2008 after Japan’s central bank reduced interest rates on Oct. 5 and said it may buy government debt and other assets to reinvigorate the economy. “Concern about inflation is looming in the U.S. because of looser policy and the weaker dollar,” said Ayako Sera, who helps oversee about $310 billion in Tokyo as a strategist at Sumitomo Trust & Banking Co. “Shorter-maturity debt is more responsive to monetary policy, whereas super-long bonds tend to move in a similar way globally.” The yield on the benchmark 20-year bond rose seven basis points to 1.74 percent at 2:46 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.9 percent debt due September 2030 sank 1.072 yen to 101.368. Twenty-year yields earlier climbed 12 basis points, the biggest increase since Aug. 27. A basis point is 0.01 percentage point. The benchmark 10-year yield added 1.5 basis points to 0.905 percent. Ten-year bond futures for December delivery gained 0.08 to 143.93 at the Tokyo Stock Exchange. Accelerating inflation reduces the value of the fixed interest debt pays. To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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