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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: macavity who wrote (7001)	8/19/2003 10:03:38 PM
From: Jon Koplik	Read Replies (1) \| Respond to of 33421

WSJ -- JGB briefly touches 1.41% yield (that is high, remember ...) August 19, 2003 Japanese Bonds Stumble As Sale Can't Stop Fall By MICHIYO SEKI DOW JONES NEWSWIRES TOKYO -- Japanese government bond prices tumbled as a 20-year bond auction proved insufficient to turn around bearish sentiment. A surging stock market prompted traders, who are already wary about signs of improvement in the Japanese economy, to dump bonds. That caused the price of the benchmark 10-year issue to fall 1.33 points to 138.22 -- the seventh consecutive session of declines, marking the longest losing streak since January 1994. The benchmark bond's yield briefly shot up to 1.41%, the highest level since May 30, 2002, and compared with below 0.9% only a week ago. Bond yields move in the opposite direction to bond prices. Analysts estimated the benchmark yield could head to 1.45% or higher, levels not seen since March of last year. In the longer term, the outlook isn't as glum as some might predict because it is doubtful that Japan will manage a solid economic recovery just yet, analysts said. "It is true that the idea that the economy will stage a mild recovery seemingly came out of nowhere for bond players," said Makoto Yamashita, senior strategist at UFJ Tsubasa Securities. "Even so, I think the size and pace of rises in yields of late are excessive." Analysts said the 10-year yield could settle in a 1%-to-1.4% range toward the end of March 2004, resulting in the overall Japan government debt market becoming more stable. But sharp moves in government-bond prices after the 20-year auction suggested the market might stay volatile in the near term. The results of the auction, announced in the afternoon session, were better than some observers had expected. The lowest price of 99.80 points for the 1.8% 20-year bond was at the top of the expected range, traders said. The Ministry of Finance sold ¥799.3 billion ($6.69 billion) of the bonds Tuesday. Prices jumped briefly on the auction results, but only long enough for banks to sell their bond holdings. The banks were looking to unload large amounts of bonds on expectations that yields would rise in response to increasing share prices. Such selling made it necessary for securities dealers, who bought the bonds that the banks sold but couldn't themselves find new buyers, to hedge their exposure by selling more government bonds, inviting even more selling from other players. "Today's market moves after the auction results were symbolic" of the recent tattered market sentiment, said Yasunari Ueno, chief market economist at Mizuho Securities. "It would take time before bond market regains confidence, maybe not before the end of September," Mr. Ueno said. Japan's fiscal first half ends Sept. 30. The volume traded of the benchmark bond ballooned to ¥4.4 trillion Tuesday, the largest figure since July 4, when the 10-year yield swung 0.36 percentage point. Many analysts are doubtful, though, that prices will fall much further because they don't think Japan's real economy is as strong as suggested by share indexes, which are usually considered a good leading indicator for economic trends. Better-than-expected gross-domestic-product data last week prompted think tanks to boost their Japan economic growth for this fiscal year, which started in April. ING Financial Markets, for example, raised its Japan GDP-growth projection for this fiscal year to 2.3% growth from the previous forecast for a 1.7% expansion. But private economists still uniformly expect nominal GDP to contract this fiscal year, showing the damage that deflation is causing the Japanese economy, Mizuho Securities' Mr. Ueno said. Nominal GDP, which doesn't adjust for price changes, is expected to shrink further. That means companies, which calculate earnings on a nominal basis, will have a hard time dramatically increasing their profits, he said. Write to Michiyo Seki at michiyo.seki@dowjones.com Updated August 19, 2003 8:30 p.m Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved