Citigroup Inc. has started selling a fund for regional banks to hedge against the risk of a decline in the value of their government bond holdings as the national debt swells.

The U.S. bank is targeting Japan's 106 local lenders and plans to raise as much as ¥200 billion, Manabu Miyamae, head of regional sales at Citigroup Global Markets Japan Inc., said in Tokyo. The fund is the first of its kind to hedge such risk through yen interest-rate swaps, according to Citigroup, the only distributor of the product.

Regional banks, which held ¥41.6 trillion in JGBs as of February, are concerned that yields will climb from a nine-year low as the government considers how to contain debt that is more than twice the size of the economy. Fitch Ratings cut Japan's credit rating on May 22, citing Prime Minister Yoshihiko Noda's "leisurely" plan for restoring fiscal health.