Japan’s bonds fell for a third day, sending 10-year yields to a seven-week high, as gains in local shares and signs of global growth damped demand for the relative safety of government securities. Ten-year debt extended a weekly loss as the European Central Bank’s interest-rate increase yesterday signaled a continuing recovery in the euro-zone economy, while the Bank of Japan held its key rate near zero. China cut its holdings of Japanese securities in February for a fourth month, according to data released today by the Ministry of Finance in Tokyo. “Economic recoveries outside Japan are likely to continue,” said Tetsuya Miura, chief market analyst in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest banking group. “As Europe starts a tightening cycle and the U.S. mulls such a move, the BOJ is being left behind. The bias is for the yield curve to steepen.” The yield on the 1.3 percent bond due March 2021 rose 1.5 basis points to 1.325 percent at 12:57 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.132 yen to 99.912 yen. Ten-year bonds headed for a third weekly drop, with yields adding 4.5 basis points in the past five days to the highest since Feb. 18. A basis point is 0.01 percentage point. Futures on the 10-year security for June delivery dropped 0.20 to 138.52 on the Tokyo Stock Exchange. The Nikkei 225 Stock Average reversed early declines to climb 1.6 percent. Yield Curve The yield spread between 2- and 10-year debt was 113 basis points today, the widest level since May. The yield curve plots the rates of bonds of the same quality, but different maturities. It steepens when yields on shorter-maturity notes fall, those on longer-dated bonds rise, or both happen simultaneously. German exports rose 2 percent in February from the previous month, when they dropped 1 percent, according to a Bloomberg News survey of economists before today’s report. U.S. data on April 13 will show retail sales advanced 0.5 percent in March, a separate survey showed. The ECB raised its benchmark rate yesterday to 1.25 percent, from a record low 1 percent, where it had been since May 2009. China sold 169.4 billion yen ($2 billion) more in Japanese securities than it bought in February, ministry data showed. China purchased a net 165.2 billion yen of long-term debt, while selling 334.5 billion yen of short-term debt. “Japan’s securities were relatively expensive,” especially short-term notes, said Yuji Kameoka, chief foreign- exchange strategist at Daiwa Securities Capital Markets Co. in Tokyo. “China’s foreign-exchange reserves have been increasing, and it will have to buy yen-denominated assets in the long- term.” To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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