Japan's Bonds Have Biggest Weekly Loss Since 2008 on Ozawa Leadership Bid
Japanese bonds completed the biggest weekly loss since May 2008 on concern a government led by Ichiro Ozawa will boost debt-fueled spending and as economic reports encouraged investors to switch to 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 second week as Japan’s public pension fund, the world’s biggest, said it would 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 benchmark 10-year bond climbed 14 basis points this week to 1.135 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The rate climbed to 1.15 percent yesterday, the highest since July 12. The price of the 1 percent bond due September 2020, which was auctioned on Sept. 1, was 98.787 yen.
Ten-year bond futures for September delivery retreated 0.65 this week to 141.90 at 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 increased to 1.615 percentage points yesterday, the widest since June 22.
Higher Spending
Ozawa, who controls 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.
Industrial production rose 0.3 percent month-on-month in July, the Ministry of Trade said Aug. 31, while economists had estimated a decline. Spending on capital excluding software fell 1.5 percent in the three months ended June 30, the smallest annual drop since 2007, the Ministry of Finance said Sept. 3.
The Nikkei 225 Stock Average gained 1.4 percent, snapping three weeks of losses.
“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. “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 on Sept. 2. That compares with sales of 720 billion yen, all in Japanese bonds, last fiscal year.
Japanese bonds accounted for 71 percent of the pension fund’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 yesterday 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 “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.
Rate These Stories
Rate this Page