Japan’s bonds fell for a second day on speculation rebuilding efforts after the March 11 earthquake will boost the economy and worsen the nation’s fiscal situation. Benchmark 10-year yields rose after Prime Minister Naoto Kan’s government said last week the temblor may have caused as much as 25 trillion yen ($306 billion) of damage. Bonds also fell before a report forecast to show U.S. consumer spending increased and as the yen weakened against the dollar, boosting the earnings outlook for Japan’s exporters. “Expectations are rising about rebuilding efforts and their effects on the economy,” said Makoto Noji, a senior debt and foreign-exchange strategist at Nikko Cordial Securities Inc. in Tokyo. Yields below 1.25 percent “seem to be rather low.” The yield on the 1.3 percent bond due March 2021 rose 1.5 basis points to 1.235 percent as of 1:33 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.135 yen to 100.576 yen. Ten-year yields have fallen two basis points this month. A basis point is 0.01 percentage point. Ten-year bond futures for June delivery declined 0.13 to 139.67 at the Tokyo Stock Exchange. Japan’s government bonds have handed investors a loss of 0.4 percent this quarter, according to an index compiled by Merrill Lynch & Co. Consumer spending in the U.S. rose 0.5 percent in February, after increasing 0.2 percent in January, a Bloomberg News survey of economists showed before today’s report. The yen fell 0.5 percent to 81.74 per dollar. ‘V-shaped’ Recovery The number of dead and missing from the March 11 earthquake, tsunami and subsequent aftershocks reached 27,116. Reconstruction efforts “may lead to a V-shaped economic recovery, push up yields in the future and steepen the yield curve: This view is weighing on bonds,” said Tetsuya Miura, chief market analyst in Tokyo at Mizuho Securities Co. “But bonds are not being sold, either, as it seems it will take time before rebuilding projects can start and the Fukushima nuclear plant situation gets sorted out.” The spread in yield between 5- and 20-year debt was 154 basis points today. The gap reached 158 basis points on March 15, the widest since December. A yield curve is a chart that plots the yields of bonds of the same quality with different maturities. It steepens when yields on shorter-maturity notes fall, those on longer-dated bonds rise, or both happen simultaneously. Hazardous Radiation Losses in bonds were limited as hazardous radiation levels found at two damaged reactors delayed work at the Fukushima Dai- Ichi power plant, boosting demand for the relative safety of government debt. Tests detected radiation yesterday at the No. 2 unit that might cause vomiting, hair loss and diarrhea upon exposure. Water may be leaking from the reactor, Sakae Muto, a vice president at plant operator Tokyo Electric Power Co., said at a news conference today in Tokyo. “We don’t know how the nuclear problem will affect people’s mindsets, and we don’t see an exit with uncertainty lingering,” said Satoshi Yamada, who helps oversee about $12.5 billion as manager of fixed-income trading at Okasan Asset Management Co. in Tokyo. “So, investors have to stick to current yield levels for now.” To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net

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