Dec. 22 (Bloomberg) -- Japan’s 10-year bonds fell for the first time in six days on speculation the yen’s decline to a seven-week low will improve the outlook for exporters’ earnings, damping demand for the relative safety of government debt.
Benchmark 10-year yields rose from a three-week low as the Nikkei 225 Stock Average gained 1.3 percent. U.S. Treasuries dropped yesterday, sending 10-year yields to a four-month high.
“Bonds are going through an adjustment today, as rising Treasury yields are beginning to impact the market here,” said Tetsuya Miura, chief market analyst in Tokyo at Mizuho Securities Co. “I expect the adjustment will continue for a while.”
The yield on the 1.3 percent bond due December 2019 gained 2.5 basis points to 1.245 percent as of 1:47 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price declined 0.224 yen to 100.488 yen. The yield yesterday touched 1.220 percent, the lowest since Dec. 1. A basis point is 0.01 percentage point.
The yield may rise to 1.3 percent by the end of this month, according to Miura. Should his forecast prove accurate, investors who buy the securities today would make a 0.4 percent loss, Bloomberg calculations show.
The yen fell to as low as 91.48 per dollar today, the weakest since Oct. 30. Ten-year Treasury yields climbed 14 basis points to 3.67 percent yesterday in New York, according to BGCantor Market Data. That’s the highest level since Aug. 13.
Bank of Japan
“Bonds should reverse their course today,” said Kazuhiko Sano, chief strategist in Tokyo at Citigroup Global Markets Japan Inc. “Today’s focus is on how the big rise in Treasury yields will affect favorable supply-demand conditions” for Japan’s government bonds. Ten-year yields may rise to 1.250 percent today, he said.
The spread between 10-year Treasury yields and the same maturity Japanese government bonds reached 245 basis points yesterday, the largest in more than a year.
Ten-year bond futures for March delivery dropped 0.25 to 140.07 at the Tokyo Stock Exchange. Five-year yields rose 2.5 basis points to 0.450 after touching 0.425 yesterday, the lowest since July 1, 2005. Twenty-year yields gained 2.5 basis points to 2.075 percent.
Losses in bonds were limited amid speculation the Bank of Japan will refrain from raising rates until inflation returns to the world’s second-largest economy.
BOJ Governor Masaaki Shirakawa said in an interview with TV Tokyo late last night in Tokyo that the central bank will “persistently” keep interest rates at “virtually zero” to fight deflation. The BOJ will aim “to supply ample liquidity and maintain stability within the financial system,” Shirakawa said.
Deflation
“Shirakawa’s comments simply reiterated the bank’s stance on falling prices, a supportive factor for bonds,” said Naomi Hasegawa, a senior debt strategist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s largest lender by assets. “But investors are unlikely to keep buying securities as the 10-year auction nears.”
The Finance Ministry is set to hold an auction of 10-year bonds on Jan. 6.
The central bank on Dec. 18 said it won’t tolerate a year- on-year rate of change in consumer prices “equal to or below zero percent,” while holding its key overnight rate at 0.1 percent.
Consumer prices excluding fresh food fell 1.8 percent in November from a year earlier, according to the median estimate of economists in a Bloomberg News survey before the statistics bureau releases the data on Dec. 25 in Tokyo.
Five-year inflation bonds yield 0.96 percentage points more than similar-maturity regular notes, according to data compiled by Bloomberg. Inflation-adjusted securities typically yield less than regular bonds because their principal payment increases at the same rate as inflation.
To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.
