Japan's Bonds Have Biggest Gain in Two Months on Nikkei Slump
Feb. 13 (Bloomberg) -- Japanese bonds rose, with benchmark 10-year debt having the biggest rally in two months, as stocks erased this year's gains.
Investors bought 10-year bonds after yields earlier today rose to near the highest for the fiscal year ending March 31, as the Nikkei 225 Stock Average dropped 2.3 percent. Yields on 10- year bonds fell more than those with shorter maturities on speculation any rate increase from the Bank of Japan may slow economic growth and stop inflation from taking hold.
``Bonds are benefiting from the drop in stocks. Investors feel comfortable buying 10-year debt,'' said Tsutomu Kawasaki in Tokyo, a fund manager who helps oversee the equivalent of about $9.3 billion in Japanese bonds at Pension Fund Association. Fixed- income securities with longer maturities also benefited ``as inflation looks benign.''
The yield on the benchmark 1.6 percent bond due in December 2015 dropped 4.5 basis points, the most for 10-year bonds since Dec. 14, to 1.55 percent as of 5:51 p.m. in Tokyo at Japan Bond Trading Co. The yield earlier rose to 1.6 percent, within 3 basis points of this fiscal year's high of 1.63 percent on Nov. 7.
The difference in yields between five- and 10-year debt narrowed to a 2 1/2-year low of about 54 basis points, flattening the so-called yield curve, a chart of rates for various tenors. The gap is the tightest in about two and half years.
`Relatively' Low Rates
The central bank ``should help the economy move to a good direction with relatively low interest rates'' after it starts to modify the so-called quantitative easing of pumping cash into the banking system and holding down rates near zero, BOJ Governor Toshihiko Fukui said today. He spoke at Japan's lower house budgetary committee in Tokyo.
Finance Minister Sadakazu Tanigaki on Feb. 10 said Japan can't yet declare victory over the streak of deflation that has sapped the world's second-largest economy for more than seven years. He spoke to reporters in Moscow before a meeting of Group of Eight finance ministers.
Speculation about a change in monetary policy have pushed up yields on five-year notes faster than those on 10-year debt this year, causing the yield curve to flatten.
``I bought some debt'' because yields look good, said Koji Mori, who oversees the equivalent of about $410 million in mutual funds in Tokyo at Daiwa SB Investments Ltd., a subsidiary of Japan's second-largest broker. ``The yield curve continues to flatten because there's strong demand for longer-dated bonds.''
Ten-year bond futures for March delivery gained 0.39 to 136.21 as of the 3 p.m. close at the Tokyo Stock Exchange.
Bond Sale
Yields on five-year notes earlier rose to the highest in more than five years on concern the government's 2 trillion yen ($17 billion) sale of the securities tomorrow will meet tepid demand.
Five-year notes completed a three-week drop on Feb. 10 amid speculation the economy is growing fast enough for the central bank to reduce cash in the financial system. A government report on Feb. 10 showed factory orders posted their longest run of gains in more than two years.
``Investors are not keen on buying five-year notes before the auction, especially when a policy shift is becoming a reality,'' said Tokyo-based Yoshimasa Kato, a deputy general manager at the investment division of Shinkin Trust Bank Ltd., which holds the equivalent of about $8.5 billion in assets. ``Yields on shorter debt are set to rise more.''
The yield on the 0.8 percent note due December 2010 dropped 1.5 basis points to 1.015 percent after climbing to 1.045 percent, the highest since December 2000, according to Japan Bond Trading.
Kato said he will wait to buy five-year notes until yields rise to about 1.3 percent, a level not seen since the central bank raised interest rates by a quarter percentage point from almost zero in August 2000.
`Prolonged' Low Rates
The central bank shouldn't increase expectations of ``prolonged'' low interest rates, BOJ policy board member Atsushi Mizuno said, according to Jiji Press.
At its two-day meeting ended Feb. 9, the bank's board kept the target for reserves made available to lenders at between 30 trillion yen and 35 trillion yen, six times more than in March 2001. Core consumer prices rose for a second month in December, a gain the bank says must be sustained if it is to end its deflation-fighting policy.
The bank has said it won't change its policy until three conditions are met: core consumer prices stop falling for at least a few months; policy makers are sure they won't resume sliding; and the bank is confident about the overall strength of the economy. |
