Japan's Government Bonds Gain as Falling Stocks Increase Demand for Safety

Japanese bonds rose, snapping the first back-to-back drop in two weeks, as stocks slid on concern Greece may need to tap emergency loans to avoid default.

Ten-year yields approached the lowest level in six weeks after Greek Finance Minister George Papaconstantinou said the nation could activate a 45 billion-euro ($60 billion) emergency aid package led by the European Union before talks on the conditions for the loans conclude in two weeks. Greece has the EU’s largest deficit. Japan’s bonds also advanced after an auction of 1.1 trillion yen ($11.8 billion) in 20-year debt today drew the highest demand since May 2008.

“Investors are feeling secure buying bonds amid declines in stocks,” said Takafumi Yamawaki, a senior strategist in Tokyo at BNP Paribas Securities Japan Ltd., a unit of France’s largest bank. “The combination of stock losses, Treasuries gains and yen strength are reasons to purchase debt.”

The yield on the 1.4 percent security due in March 2020 fell 1.5 basis points, or 0.015 percentage point, to 1.315 percent as of 4:23 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price gained 0.132 yen to 100.744 yen. Yields touched 1.305 percent on April 19, the lowest since March 11. Twenty-year yields dropped two basis points to 2.085 percent.

Ten-year bond futures for June delivery rose 0.21 to 139.34 as of the afternoon close at the Tokyo Stock Exchange. The Nikkei 225 Stock Average dropped 1.3 percent as the yen strengthened to 93.09 per dollar today from 93.19 in New York yesterday.

Auction Results

Today’s sale of 20-year Japanese debt drew bids worth 4.02 times the amount on offer, the highest so-called bid-to-cover ratio since May 2008. The lowest price at the bond offering was 0.03 yen below the average, compared with 0.07 at the March 16 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.

Japan’s bonds are headed for the best month since November after Sumitomo Life Insurance Co., Dai-ichi Life Insurance Co., and Meiji Yasuda Life Insurance Co. said they plan to purchase government debt in the fiscal year started April 1.

Sumitomo, Japan’s fourth-largest life insurer with about 20 trillion yen in assets, said it prefers to hold the nation’s debt amid signs governments may withdraw stimulus measures that have helped boost Japanese exports.

Japanese bonds have handed investors a return of 0.5 percent this month, heading for the largest gain since a 0.8 percent increase in November, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit.

Spread to Treasuries

Treasuries yesterday gained by the most in three days as concern over Greece pushed investors toward higher-quality debt. Ten-year U.S. yields fell six basis points, reducing their yield advantage over Japanese rates to 2.39 percentage points.

“In yesterday’s U.S. markets, Treasuries were bought because of the uncertainty surrounding Greece,” said Eiji Dohke, chief strategist in Tokyo at UBS Securities Japan Ltd., one of the 23 primary dealers that are required to bid at government debt sales. “Investors are unlikely to sell bonds before the Golden Week holidays” at the beginning of May.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

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