Japanese Bonds Fall After Report Shows Consumer-Price Declines Moderated

Japan’s 10-year government bonds fell for a second day, pushing yields to an 11-week high, after a report showed declines in consumer prices moderated.

Ten-year bonds completed a seventh weekly loss, the longest losing streak since April 2006, before the Ministry of Finance sells 2.2 trillion yen ($26 billion) of 10-year debt on Dec. 1. Bonds futures slid to a five-month low after the ministry reported today that foreign investors sold a net 217.5 billion yen in Japanese bonds last week. The difference in yield between 10- and 2-year securities increased to the most in 11 weeks.

“Excessive pessimism about the economic outlook has disappeared for now,” said Tetsuya Miura, chief market analyst in Tokyo at Mizuho Securities Co., a unit of Japan’s second- largest banking group. “People don’t see a reason to start buying bonds again.”

The yield on the 1 percent bond due September 2020 rose 2.5 basis points to 1.18 percent as of 3:01 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.216 yen to 98.418 yen. The yield reached 1.185 percent earlier, the highest since Sept. 6.

Ten-year yields have gained 11 basis points this week, the biggest gain since the week ended Sept. 3. A basis point is 0.01 percentage point.

Ten-year bond futures for December delivery slid 0.53 to 140.57 as of the 3 p.m. close at the Tokyo Stock Exchange. They touched 140.50, the lowest for a lead contract since June 22.

Prices, Auction

Consumer prices excluding fresh food fell 0.6 percent in October from a year earlier after dropping 1.1 percent in September, the statistics bureau said today in Tokyo, matching the median forecast of 28 economists surveyed by Bloomberg News. Overall consumer prices rose 0.2 percent from a year ago, the first increase since December 2008.

The prior 10-year bond sale on Nov. 2 drew bids worth 3.91 times the amount on offer, compared with a so-called bid-to- cover ratio of 2.85 at the October sale. Primary dealers, which are required to bid at government debt sales, often reduce holdings of bonds in case prices decline before they can pass on the new securities to investors.

“It’s hard to expect a lot of buying before next week’s 10-year bond auction,” Shinji Nomura, chief debt strategist at Nikko Cordial Securities Inc. in Tokyo, wrote in a note today. “Ten-year yields are heading for 1.195 percent.”

‘Deteriorate Further’

Losses in bonds were limited on speculation high yields are enough to encourage investors to buy the securities.

“Yields around 1.2 percent should be attractive to investors,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo. “I expect yields to go down toward year-end, as I see a risk domestic economic reports will deteriorate further.”

Ten-year yields may fall to as low as 1 percent by the end of December, Minami said. Should his forecast prove accurate, investors who buy the securities today will make a 1.7 percent return, according to Bloomberg calculations.

The extra yield that investors demand to hold 10-year debt over two-year notes rose to 1 percentage point today, the most since Sept. 13, according to data compiled by Bloomberg.

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.

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.