Nov. 7 (Bloomberg) -- Japan’s 10-year government bonds completed a five-week decline, the longest stretch of losses in more than a year, on speculation signs of a global economic recovery will spur demand for riskier assets.

Yields touched the highest level in three months after a report showed Japan’s broadest indicator of economic health rose for a sixth month in September. Demand for bonds weakened before the government sells 5- and 40-year securities next week. Finance Minister Hirohisa Fujii said on Nov. 4 the government will likely sell debt to fill a shortfall in tax revenue.

“Yields are inclined to rise as the economy recovers,” said Ryutaro Matsuyama, a strategist in Tokyo at Mizuho Investors Securities Co. “What makes matters worse is the growing uncertainty over the government’s fiscal discipline.”

The yield of the 1.4 percent security due in September 2019, which was reopened on Nov. 5, rose 4.5 basis points this week to 1.450 percent in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker.

Ten-year yields reached 1.455 percent yesterday, the highest since Aug. 10. A basis point is 0.01 percentage point.

Bond futures for December delivery fell 0.43 this week to 137.56 at the Tokyo Stock Exchange.

The Nikkei 225 Stock Average advanced 0.7 percent yesterday. Japan’s bond yields often move in the same direction to stocks. Benchmark 10-year yields had a correlation of 0.6 with the Nikkei 225 in October, according to Bloomberg data. A value of 1 means the two moved in lockstep.

Economic Data

The Dow Jones Industrial Average gained the most since July on Nov. 5, after data on jobless claims and worker productivity beat economists’ estimates.

U.S. reports underscore “an improvement in the job market, suggesting that U.S. year-end sales may not be so disastrous,” said Makoto Yamashita, chief Japan interest-rate strategist at Deutsche Securities Inc. in Tokyo. “Riskier assets such as stocks will rise and yields will increase.”

Reports on Nov. 5 showed U.S. initial jobless claims dropped by 20,000 to 512,000 in the week ended Oct. 31 and the measure of employee output per hour jumped at a 9.5 percent annual rate in the third quarter, topping the highest estimate of economists surveyed by Bloomberg News.

Japan’s coincident index, a composite of 11 indicators including factory production and retail sales, rose to 92.5 in September from 91.2 in the previous month, the Cabinet Office said yesterday in Tokyo. The result matched the median forecast in a Bloomberg survey of economists.

The Finance Ministry will sell 2.4 trillion yen ($26.4 billion) in five-year notes on Nov. 12. It sold 2.3 trillion yen of the maturity in October.

Losing Confidence

Government bonds logged the longest stretch of weekly declines since June 2008 after the Finance Ministry said last week it will increase annual sales of government bonds. The announcement that offerings will increase by 2.1 trillion yen to a record 132.3 trillion yen in the fiscal year ending March 2010 didn’t take into account a shortfall in tax revenue.

“Investors, foreign players in particular, are losing confidence in the Democratic Party of Japan’s ability to manage finances and debt, resulting in active selling of Japanese government bonds,” said Takahiro Kabuki, leader of the treasury division in Tokyo at Chiba Bank Ltd.

Foreign investors sold a net 346.8 billion yen in Japanese bonds in the week ended Oct. 30, the biggest sales in a month, according to the Ministry of Finance in Tokyo.

‘Can Resume Buying’

Bond losses were limited on speculation 10-year yields near a three-month high will attract investors.

“Yields are gradually approaching levels where investors can resume buying,” said Shinichi Horikawa, a general manager of the accounting and investment department at Mitsui Sumitomo Kirameki Life Insurance Co. in Tokyo. “But for investors to actually start buying debt, the government needs to show a clear commitment to rebuild finances and dispel the anxiety over its debt management.”

To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net

Last Updated: November 6, 2009 16:09 EST