Japan’s bonds declined for a second day as domestic shares climbed and demand fell at a 1.1 trillion-yen ($13.2 billion) sale of 20-year debt today. Benchmark 10-year yields reached a two-month high as the Nikkei 225 Stock Average rose past 10,000 for the first time since June. The debt auction drew bids valued at 2.54 times the amount on offer, the least since December 2009. Bonds also fell before reports forecast to show increases in an index of U.S. leading economic indicators and Philadelphia-area manufacturing. “A gain in stocks depresses bond investors’ sentiment,” said Akitsugu Bandou, a senior economist in Tokyo at Okasan Securities Co. “The atmosphere is bad in the bond market.” The yield on benchmark 10-year bond jumped 4.5 basis points to 1.105 percent, the most since Sept. 14, as of 3:27 p.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1 percent note due September 2020 fell 0.396 yen to 99.069 yen. A basis point is 0.01 percentage point. Ten-year bond futures for December delivery declined 0.51 to 141.45 at the 3 p.m. close of the Tokyo Stock Exchange. The yield spread between Japan’s 20- and 10-year bonds was about 85 basis points. It expanded to 90 basis points on Nov. 12, the widest since March 2008. “It’s a question of whether 10-year bonds are overvalued or super-long debt is undervalued,” said Okasan’s Bandou. “Because sentiment is bad, investors are prone to sell overvalued assets.” The lowest accepted price at the 20-year debt auction was 99.70, lower than the 99.90 estimated by traders in a Bloomberg survey. Debt Sales Japan’s bond sales may increase at a slower pace next fiscal year, easing concern supply will outstrip demand, according to Tokai Tokyo Securities Co. and Mitsubishi UFJ Morgan Stanley Securities Co. Bond and note sales will likely grow by 3.6 trillion yen, or about 2.5 percent, in the year starting April 2011, according to the companies, which are among Japan’s 24 primary dealers. Declines in Japanese debt coincided with drops in U.S. Treasuries. The U.S. Conference Board’s gauge of the outlook for the next three to six months rose 0.5 percent in October, the biggest gain since May, based on a Bloomberg News survey of economists. The Federal Reserve Bank of Philadelphia’s general economic index increased to 5 in November from 1 a month earlier, another survey showed. Another report today may say jobless claims last week held near a four-month low. 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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