China's government bonds rose on speculation the central bank will lower interest rates in the first quarter, increasing liquidity in the bond market.
China lowered it benchmark interest rate by 0.27 percentage point on December 22, the fifth reduction since the start of September, after inflation slowed to a 22-month low of 2.4 per cent in November.
China's government bonds gained 11 per cent last year, after losing 2 per cent in 2007, according to local-currency debt indexes compiled by HSBC Holdings. The yield on the 1.77 per cent note due December 2013 fell three basis points to 1.79 per cent, according to the China Interbank Bond Market. The price climbed 0.13 per 100 yuan face amount to 99.93. A basis point is 0.01 percentage point.
China's finance ministry may sell 1.3 trillion yuan (Dh700bn) of bonds this year, 60 per cent more than in 2008, according to Chinabond, the country's biggest debt-clearing house.
Japanese 10-year government bonds fell by the most in more than a month on speculation gains in global stocks reduced demand for debt. Benchmark 10-year yields climbed from near the lowest level since 2003. Dealers may also reduce debt holdings to prepare for this year's first bond auction later this week, according to Mizuho Investors Securities in Tokyo.
In London, European government bonds fell the most in three weeks as gains in stock markets reduced investor demand for the safest assets.
The decline pushed the yield on the 10-year German bund to the highest level in two weeks as officials said US President- elect Barack Obama may cut taxes by more than $300bn (Dh1.10trn).
"Bond bears are saying the worst of the crisis is behind us, As the US stimulus package becomes firmer, risky assets will rally and the immediate need for a safe haven will be reduced," said David Schnautz, a fixed-income strategist in Frankfurt at Commerzbank.
The yield on the 10-year bund, Europe's benchmark government security, climbed nine basis points to 3.05 per cent in London.