hr: Money

Japan’s five-year notes completed the biggest weekly gain in 10 months as declines in stocks spurred demand for bond yields near the highest since July.

Bonds also gained as traders trimmed bets the central bank will raise interest rates this year, according to Bloomberg calculations using interest-rate swaps.

“Weaker stocks supported bonds,” said Keiko Onogi, a debt strategist in Tokyo at Daiwa Securities SMBC Co., one of the 26 primary dealers that are required to bid at government debt sales. The yield on the 1.5 percent note due June 2013 fell 18 basis points this week to 1.35 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price gained 0.84 yen to 100.70. A basis point is 0.01 percentage point.

Ten-year bond yields decreased 8 basis points this week to 1.76 percent and 10-year bond futures for September delivery added 1.15 over the five days to 133.50 on the Tokyo Stock Exchange. The Nikkei declined 1.3 percent yesterday, completing the second weekly slide.

`Extremely Uncertain’

“Shirakawa-san is not suggesting a rate hike,” said Hitomi Kimura, a bond strategist in Tokyo at JPMorgan Securities Japan Co., also a primary dealer. The chance the central bank will increase its benchmark rate this year fell to 54 percent yesterday from 67 percent at the end of last week, according to Bloomberg calculations using overnight interest-rate swaps from JPMorgan Chase & Co. The odds were as high as 92 percent on June 11.

Demand for bonds may be limited before a government report next week that economists say will show inflation quickened to the fastest in a decade, said Susumu Kato, chief economist at Calyon Securities in Tokyo. Inflation erodes the value of the fixed payments from debt.

The report is due June 27.

The so-called breakeven inflation rate reflects investor expectations for average annual increases in consumer prices over the next decade.