Japan’s government bonds fell after the nation’s sovereign credit rating was downgraded by Standard & Poor’s, the first cut since 2002.

Benchmark 10-year bonds erased gains and the yen slid after the decision added to concerns Prime Minister Naoto Kan hasn’t done enough to curb the world’s largest debt load. Bonds had advanced earlier after a 2.6 trillion yen ($31.7 billion) sale of two-year notes attracted the highest demand since October.

“The downgrade reflects our appraisal that Japan’s government debt ratios — already among the highest for rated sovereigns — will continue to rise further than we envisaged before the global economic recession hit the country,” S&P said in a statement today.

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