Japanese 20-Year Bonds Fall; Yields Gain to Highest in 2 Years
April 21 (Bloomberg) -- Japanese 20-year bonds fell, pushing yields to their highest in more than two years, on prospects for quickening export-led growth after Federal Reserve Chairman Alan Greenspan yesterday said he was confident about the U.S. economy.
Bonds dropped after Greenspan's comments helped push 10-year U.S. Treasury yields to the highest this year. Exports made up about a third of Japan's fourth quarter economic growth, which was the fastest since 1990. The U.S. is Japan largest market abroad.
``Investors are selling bonds after the drop in Treasuries,'' said Yuzo Nakajima, a fund manager in Tokyo who oversees the equivalent of $276 million at Deutsche Asset Management (Japan) Ltd., fund management unit of Deutsche Bank AG, the world's third- largest money manager. ``Greenspan's comment suggests strong U.S. growth. Higher interest rates and yields are a result of that.''
The 1.9 percent bond maturing in 2024 fell 0.265 to 95.914, pushing its yield up 2 basis points to 2.195 percent as of 4:59 p.m. in Tokyo, according to Japan Bond Trading Co. Its yield earlier rose to 2.205 percent, the highest for a 20-year bond since Feb. 13, 2002. A basis point is 0.01 percentage point.
Greenspan yesterday told Congress that companies appear to find it easier to raise prices. The Fed chairman said he feels confident about the U.S. economy, and the threat of deflation, or falling prices for goods and services, is ``no longer an issue.''
Pricing Power
Ten-year U.S. Treasuries tumbled yesterday after Greenspan's comments. The benchmark 4 percent note maturing in 2014 fell yesterday, driving its yield up 8 basis points to 4.46 percent, the highest this year.
Greenspan ``signaled U.S. rates may rise and companies pricing power has been restored,'' said Jun Ishii, chief fixed- income strategist at Mitsubishi Securities Co. in Tokyo, part of Mitsubishi Tokyo Financial Group Inc., Japan's second-largest lender.
The 1.5 percent coupon bond that matures in 2014, fell 0.299 to 99.442, according to Japan Bond Trading. Its yield rose 3.5 basis points to 1.565 percent. Its yield earlier rose to 1.57 percent, matching the highest for a 10-year bond since Sept. 10. Ten-year yields may rise to 1.7 percent in the next few months, Deutsche Asset's Nakajima said.
Ten-year bond futures for June delivery fell 0.45 to 136.85 as of the afternoon close at the Tokyo Stock Exchange.
Stocks Firm
Bonds also fell as stocks pared earlier declines, dimming demand for debt's fixed payments.
The Nikkei 225 Stock Average closed little changed at 11,944 after earlier dropping as low as 11,881. In the U.S. the Standard & Poor's 500 Index dropped 1.6 percent, the most since Sept. 24.
``The fact that stocks didn't drop sharply given prospects for higher interest rates in the U.S. confirms the view that the economy is improving and has further to go,'' said Norihisa Takao, who helps oversee the equivalent of about $46 billion of fixed- income securities at Daiwa Asset Management Co., the largest manager of Japanese money-market funds. ``Ten-year bond yields could have further to rise.''
Japanese benchmark 10-year bond yields, which move in the opposite direction of prices, have tracked movements in the Nikkei 225 in the past year with a correlation of 0.89. A correlation of 1 means the two moved in lock step.
Takao said 10-year bond yields may rise as high as 1.8 percent in the next six months.
20-Year Auction
Twenty-year bonds fell for a third day as traders prepared for a government auction of the new securities tomorrow.
Japan will sell 600 billion yen ($5.51 billion) of 20-year bonds, an increase from the monthly 500 billion yen at its previous auction in March.
The increase comes as the government said new bond sales will rise to 36.6 trillion yen in the fiscal year started this month, a record for an initial budget.
The government only sold more in a business year during the 12 months ended March 2000 when a supplementary budget pushed the amount to 37.5 trillion yen, according to the Ministry of Finance.
The 20-year bond to be sold Thursday traded at a yield of 2.145 percent yesterday in when-issued trading, according to Japan Bond Trading, suggesting the ministry will set a 2.1 percent coupon on the bonds. The when-issued system allows trading in government bonds a week before the securities are auctioned.
``A higher coupon will encourage more investors to buy at the auction,'' said Deutsche Asset's Nakajima. |
