Japanese Bonds Slide for a Record 13th Day on Faster Growth
June 14 (Bloomberg) -- Japanese 10-year bonds fell for a record 13th day on speculation faster economic growth may lead the Bank of Japan to raise interest rates as early as next year.
Euroyen futures indicate the central bank may raise its target for overnight bank lending, which has been held at near zero since 2001, as early as March next year. Merrill Lynch & Co. said in a report financial institutions may decrease holdings of bonds and buy stocks because their funds are too exposed to higher interest rates.
``Investors are starting to bet that the Bank of Japan won't keep rates near zero forever,'' said Jun Fukashiro, who oversees the equivalent of $226 million at Toyota Asset Management Co. in Tokyo. ``Bond yields may have further to rise.''
The benchmark 1.6 percent security due in June 2014 fell 0.540 to 97.932 as of the 3:05 p.m. in Tokyo, according to Japan Bond Trading Co., the nation's largest debt broker. Its yield rose 6.5 basis points to 1.845 percent. It earlier rose to 1.855 percent, the most for a benchmark 10-year bond since Oct. 30, 2000. A basis point is 0.01 percentage point.
Bonds haven't fallen for 13 days since Japan Bond Trading started keeping records in November 1986.
Ten-year bond futures for September delivery fell 0.68 to 133.95 as of the afternoon close at the Tokyo Stock Exchange. They earlier dropped to 133.75, the lowest since Nov. 15, 2000.
The Bank of Japan pushed its target for overnight bank lending to near zero percent in March 2001. It will probably keep the rate there at a two-day policy meeting starting today, according to all 14 economists surveyed by Bloomberg News.
2005 Rate Rise
Seven of the 14 economists surveyed said they expect the bank to shift away from its policy of pumping money into the banking system to keep rates near zero as early as next year.
The yield on three-month Euroyen futures rose for a third day in four amid speculation the central bank may raise interest rates by at least 10 basis points by March.
The rate on three-month Euroyen futures for March delivery rose to as much as 0.29 percent, the highest since Sept. 3. The yield has averaged about 17 basis points more than the central bank's target overnight interbank lending rate since 1996.
The U.S. will probably say later today that retail sales rose in May for the seventh month in eight, economists said in Bloomberg News survey. In Japan, the government on Wednesday said first-quarter economic growth was an annualized 6.1 percent, more than previously reported.
``Investors should sell bonds,'' said Eiji Dohke, chief strategist at UBS Securities Japan Ltd., which is owned by UBS AG, Europe's biggest bank by assets. ``We're continuing to get better economic figures in the U.S. and Japan.''
Slide Too Fast
The 0.8 percent note maturing June 2009 fell 0.355 to 99.120, according to Japan Bond Trading. Its yield rose 7.5 basis points to 0.985 percent. Its yield earlier rose to 1 percent, the most for a five-year note since Sept. 3.
Some investors may buy bonds on speculation the longest slide on record has pushed yields to higher levels too quickly.
The 14-day relative strength index for benchmark bond yields rose to 80 on Friday, the most since Aug. 20. Ten-year yields had their biggest decline in over a month on Aug. 21, dropping 8 basis points.
For a bond, a reading above 70 signals that selling may have peaked, while a level close to 30 suggests buying has lost momentum.
``We've had a serious sell-off in the last few sessions,'' said Yuichi Chiguchi, a deputy division manager who helps oversee the equivalent of about $3.9 billion at ING Life Insurance Company Ltd. ``In the very short-term I expect a sell-off in equities and a buy back of bonds.''
Shinkin Central Bank
The Nikkei 225 Stock Average fell 0.3 percent to 11,491. Japanese benchmark 10-year bond yields, which move in the opposite direction of prices, have tracked movements in the Nikkei 225 Stock Average in the past year with a correlation of 0.80. A correlation of 1 means the two moved in lock step.
Financial institutions that hold more bonds than stocks will increase their equity holdings as the outlook for Japan's economy improves, Masatoshi Kikuchi, Merrill's Japanese equity strategist, said in a report after the market closed Friday.
Shinkin Central Bank, the central bank for about 700 credit unions, is starting a team to consider more investments in equities, Kikuchi wrote to clients late Friday, citing a Nihon Keizai newspaper report. The bank has about 27.2 trillion yen in assets, of which 0.1 percent is invested in equities, according to Merrill Lynch. |
