Japan's Bond Futures Fall as Investors Cut Bets Before Fed, BOJ Meetings

Japan’s 10-year bond futures declined for a third day before the Federal Reserve and Bank of Japan hold policy meetings this week.

Five-year yields matched a six-week high before a report tomorrow forecast to show companies in the U.S. added jobs in October. The BOJ is set to gather on Nov. 4-5 after the Fed’s two-day meeting starting today. Japan’s 10-year yields retreated from a five-week high after an auction of benchmark debt today drew more demand than some traders expected.

“A good auction may not cause investors to buy bonds aggressively before the Fed’s meeting, a big event,” said Shuntaro Take, deputy general manager for corporate investment at Tokio Marine & Nichido Life Insurance Co. “We don’t know what they will decide and how U.S. markets will react.”

Ten-year bond futures for December delivery declined 0.05 to 143.03 as of 3:07 p.m. at the Tokyo Stock Exchange. Japan’s financial markets will be closed for a public holiday tomorrow.

The yield on the five-year note due September 2015 rose half a basis point to 0.3 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.025 yen to 99.999 yen. The yield matched the highest since Sept. 16.

Ten-year yields dropped 1.5 basis points to 0.935 percent after earlier reaching 0.975 percent, the highest since Sept. 27. A basis point is 0.01 percentage point.

The lowest price at the auction was 100.26 yen, higher than the median of 100.25 predicted by 13 traders in a Bloomberg News survey. The sale drew bids worth 3.91 times the amount on offer, up from a so-called bid-to-cover ratio of 2.85 times at the previous auction last month.

BOJ Minutes

Minutes released today of the Bank of Japan’s Oct. 4-5 meeting showed board member Miyako Suda said funds buying Japanese debt may cause a bubble. One BOJ member warned against excessive expectations for low rates, the minutes also showed.

Bank of Japan board members also said purchases of exchange-traded funds and real-estate investment trusts could bolster investor sentiment.

The central bank unexpectedly lowered its benchmark interest rate at the meeting and pledged to spend 5 trillion yen ($62 billion) to buy assets including government bonds and corporate debt. The bank plans to discuss purchases of exchange- traded funds and real-estate investment trusts this week.

The Federal Open Market Committee will probably announce a new round of unconventional monetary easing this week by announcing a plan to buy at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News.

U.S. employment rose by 20,000 in October, according to the median estimate of economists in a Bloomberg News survey before ADP Employer Services releases the data tomorrow.

“Investors are likely to refrain from big selling and buying ahead of the FOMC meeting, the biggest event by year- end,” Shinji Nomura, chief debt strategist at Tokyo-based Nikko Cordial Securities Inc., wrote in a note today.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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