Japan's 10-year bonds surge

Japan's 10-year bond futures traded near the highest level this year as signs the global economic recovery is slowing boosted demand for government debt.

Ten-year bond futures for March delivery fell 0.03 to 139.78 at the Tokyo Stock Exchange. They climbed to 140.05 on February 26, the highest since December 22.

The yield on the new benchmark bond sold on Tuesday was unchanged at 1.33 per cent in Tokyo, according to Japan Bond Trading, the nation's largest interdealer broker.

The difference between 10 and 20-year yields was close to the widest in two years after the Ministry of Finance sold 10-year bonds with a 1.4 per cent coupon, the highest since November. The difference between 10 and 20-year yields was 84.9 basis points yesterday. The spread reached 85.4 basis points on December 17, the most since March 2008.

The lowest price at the 10-year auction was ¥0.02 below the average, compared with 0.03 at the February sale. The so-called tail is the gap between the lowest and the average price. The shorter the tail, the more bids are clustered around the average price.

Demand for debt was also bolstered before reports this week that economists said will show US companies cut jobs and capital spending by Japanese firms declined.

"As recent auctions have been rather good, supply-demand conditions remain positive," said Shinji Hiramatsu, senior investment manager in Tokyo at Sompo Japan Asset Management, which oversees about $15.8 billion (Dh58bn).

JGBs have been supported by expectations that the Bank of Japan could further relax monetary policy to support a fragile recovery in an economy suffering from deflation.

The government is increasing pressure on the central bank, urging it to further ease monetary policy to help the economy. That is making investors even more comfortable about picking up JGBs.

Japanese Finance Minister Naoto Kan said the government and the BoJ are making efforts to escape from deflation at an early date.

 

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