Japanese Bonds Fall, Complete Biggest Weekly Loss Since 2008, on Ozawa Bid
Japanese bonds fell, completing the biggest weekly loss since May 2008, on concern a government led by Ichiro Ozawa will boost debt-fueled spending and as capital expenditure data bolstered demand for higher-yielding assets.
Benchmark 10-year yields climbed to a seven-week high as Ozawa stepped up his campaign to wrest leadership of Japan’s ruling party from Prime Minister Naoto Kan. Ten-year futures dropped for a third day as Japan’s public pension fund, the world’s biggest, said it will increase sales of assets including domestic bonds this fiscal year.
“Investors who expected the government to restructure its finances are now selling bonds on concern Ozawa’s candidacy will lead to aggressive government spending,” said Akitsugu Bandou, senior economist in Tokyo at Okasan Securities Co. “There was confidence in the market that Kan’s administration would control bond issuance.”
The yield on the 1 percent bond due September 2020 rose three basis points to 1.135 percent as of 3:17 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. That’s the highest for a 10-year yield since July 14. The price slid 0.267 yen to 98.787 yen.
Benchmark yields have climbed 14 basis points this week, the biggest increase since the five days ended May 16, 2008.
Ten-year bond futures for September delivery retreated 0.31 to 141.90 at the afternoon close of the Tokyo Stock Exchange.
Thirty-year yields have climbed almost 40 basis points since touching a seven-year low on Aug. 25, a day before Ozawa said he would challenge Kan. The spread between five- and 30-year rates widened to 1.615 percentage points today, the most since June 22.
Childcare Spending
Ozawa, who heads the Democratic Party of Japan’s largest faction, has pledged to double a monthly childcare allowance and extend the period of subsidies for energy-efficient household appliances. The winner of the Sept. 14 ballot is assured of being prime minister because the DPJ controls the lower house.
Spending on capital excluding software fell 1.5 percent in the three months ended June 30, the smallest annual decline since 2007, the Ministry of Finance said today. Economists had estimated a 5.9 percent slide.
“If this recovery continues, albeit slowly, companies are likely to keep increasing investment to the level where it should be,” Takeshi Minami, chief economist at Tokyo-based Norinchukin Research Institute Co., wrote in a report today. “Obviously, there is a risk that a full-scale recovery is delayed by the increasingly hazy outlook.”
Pension Fund
The Government Pension Investment Fund will sell about 4 trillion yen ($47 billion) in assets this fiscal year ending March 31, President Takahiro Mitani said in an interview in Tokyo yesterday. That compares with sales of 720 billion yen, all in Japanese bonds, last fiscal year.
Japanese bonds accounted for 71 percent of the GPIF’s 117 trillion yen of assets as of June 30, while domestic stocks made up 11 percent, the fund’s statements show.
Bonds also dropped as the Ministry of Finance sold 300 billion yen of extra 20- and 30-year securities to increase liquidity. The so-called bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, fell to a record 1.45 times.
“The weak result of today’s sale was a part of the reason for drops in bonds,” said RuiXue Xu, a strategist in Tokyo at RBS Securities Japan Ltd., a unit of Royal Bank of Scotland Group Plc.
To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Kenichiro Kanno in Tokyo at kkanno3@bloomberg.net.
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