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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: CalculatedRisk who wrote (29417)	3/26/2005 7:40:36 AM
From: Crimson Ghost	Respond to of 110194

Japan bond yields drop as US yields rise This may serve to restrain further hikes in US bond yields for the time being: Japan 10-Year Bonds Rose a 3rd Week, Longest Run Since January March 26 (Bloomberg) -- Japan's 10-year bonds had a third weekly gain, the longest rally since January, after government reports this week showed consumer prices fell, confidence among manufacturers dropped and export growth slowed. Ten-year yields have fallen 0.17 percentage point from a four-month high marked March 4 amid speculation almost seven years of deflation will force the central bank to keep interest rates near zero. The Nikkei 225 Stock Average's biggest weekly drop in two months also spurred demand for bonds. The benchmark 1.5 percent bond due in March 2015 rose 0.485 on the week to 101.184, according to Japan Bond Trading Co. Its yield fell 5.5 basis points, or 0.055 percentage point, to 1.365 percent, the lowest for a 10-year bond since Feb. 10. The Nikkei 225 dropped 1 percent this week to 11,761.10 from a 10-month high of 11,966.69 on March 9. ``Concerns about a rise in yields and faster growth are waning as the Nikkei is getting further away from breaking above 12,000,'' said Makoto Yamashita, an Tokyo-based economic strategist at UFJ Tsubasa Securities Co., one of the 26 primary dealers invited to discuss bond sales with the Ministry of Finance. Ten-year yields may fall to 1.33 percent next week, Yamashita said. Ten-year bond futures for June delivery rose 0.55 to 138.89 this week. Deflation Nationwide core consumer prices excluding fresh food fell 0.4 percent in February from a year earlier, a government report showed yesterday. The median forecast of 32 economists surveyed by Bloomberg News was for a 0.3 percent drop. The Bank of Japan in March 2001 pushed overnight loan rates between banks to near zero by raising its target for reserves available to lenders. The central bank has said it won't increase rates until consumer prices rise and show no sign of falling. Exports grew 1.7 percent in February from a year earlier, the smallest increase in 15 months, the ministry said on March 23. Waning demand for exports may slow industrial output in Japan. A report due March 30 will probably show industrial production fell 1.2 percent in February, compared with a 2.5 percent gain in the previous month, according to the median forecast of 21 economists surveyed by Bloomberg News. `Take Longer' ``Bonds benefited from concerns that reaching a sustainable recovery will take longer,'' said Tsutomu Kawasaki, a fund manager in Tokyo who helps oversee the equivalent of about $10.3 billion in Japanese bonds at Pension Fund Association. ``The Bank of Japan is unlikely to raise rates by March next year.'' Kawasaki at Pension Fund Association, which has more than 1,600 corporate pension funds as members in Japan, declined to comment on what he will do with his investments. The confidence index among manufacturers fell to minus 7.6 points in the first quarter from minus 1.3 points in the previous quarter, a Ministry of Finance survey showed on March 24. The Bank of Japan's Tankan quarterly index of confidence among large manufacturers probably rose to 23 points in March from 22 points in December, according to the median forecast of 36 economists surveyed by Bloomberg News. A number above zero means optimists outnumber pessimists. The report is due April 1. `Plateau' ``It's difficult to be aggressive about buying bonds at these low levels,'' said Ryoichi Katagiri, who helps oversee the equivalent of about $132 billion in fixed-income assets at Shinkin Central Bank in Tokyo. ``Japan's economy is on a plateau and will probably regain steam in the latter half of the year.'' He said 10-year yields may rise to 1.8 percent by the end of December, declining to comment on his investments. Shinkin settles transactions and performs other services as a central bank for more than 300 credit unions nationwide. A government report on March 14 showed the economy unexpectedly grew in the three months to Dec. 31, reversing an earlier estimate of a third quarter of contraction. Bonds also gained after the U.S. Federal Reserve's decision to raise interest rates caused Japan's stocks to fall. The Fed on March 22 said inflationary pressures have picked up, fueling concern it will accelerate the pace of interest rate increases. Higher borrowing costs in the U.S. may slow consumer spending and damp demand in Japan's largest export market. ``Bond yields may have room to fall on the back of the clouding outlook for the economy,'' said Jun Ishii, chief fixed income strategist at Mitsubishi Securities Co. in Tokyo, one of the five largest buyers at government debt auctions. The Nikkei 225 has fallen 1.7 percent since March 9, the day the average rose to a 10-month high. Since then, 10-year bonds have returned 1.2 percent including reinvested interest, according to data compiled by Bloomberg. The No. 268 bond with a 1.5 percent coupon due in March 2015 closed at 101.18 to yield 1.365 percent yesterday, according to the Bloomberg Yen Bond Fixing Price. The level is an average rate set at 6:30 p.m. in Tokyo by Daiwa Securities SMBC Co., Nikko Citigroup Ltd., Mizuho Securities Co. and Mitsubishi Securities Co. To contact the reporter on this story: Keiko Ujikane i