Japan's 20-Year Yields May Reach `Lehman Shock' Low on Fed Rates, RBS Says

Japan’s 20-year bond yields may drop to levels unseen since the collapse of Lehman Brothers Holdings Inc. in September 2008 as the Federal Reserve keeps interest rates near zero, Royal Bank of Scotland Group Plc. said.

Long-term yields in Japan and the U.S. will decline as investors demand higher returns, said Akito Fukunaga, Tokyo- based chief rates strategist at RBS. Japan’s 20-year yields will likely stay below 2 percent for a “long time,” he said.

“The levels below 1.7 percent reached in December 2008 after the Lehman shock will be on the horizon,” Fukunaga said.

Japan’s 20-year yields dropped 3.5 basis points to 1.77 percent yesterday, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. They touched 1.735 percent on July 2, the lowest level since January 2009. The securities have not traded yet today.

Thirty-year Treasury yields fell as much as 12 basis points to 3.86 percent on July 21 after Federal Reserve Chairman Ben S. Bernanke said the economic outlook is “unusually uncertain” and policy makers are prepared “to take further policy actions.” Two-year U.S. yields dropped two basis points to a record low of 0.552 percent after Bernanke spoke.

Just like what happened with Treasuries, investors stayed away from lower-yielding shorter-term Japanese debt and opted for longer-maturity securities, according to Kazuya Ito, a fund manager in Tokyo at Daiwa SB Investments Ltd.

Japan’s 10-year and 20-year yields yesterday declined 3 basis points and 3.5 basis points, respectively, while five-year yields fell half a basis point.

To contact the reporter on this story: Nobuyuki Akama in Tokyo at akam@bloomberg.net.

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