Japan's 10-Year Bonds Rise Most Since October Before Consumer Prices Data
Japan’s 10-year bonds completed the biggest weekly gain since October before a report next week that economists said will show consumer prices continued to drop, boosting demand for the fixed payments of debt.
Bonds gained as local stocks fell, enhancing the appeal of safer assets. Bank of Japan Governor Masaaki Shirakawa on Dec. 21 warned about risks to the economy from bond yield gains after the central bank left its credit programs unchanged and kept the benchmark interest rate between zero and 0.1 percent.
“Deflation is likely to persist next year even if a drop in prices slows down,” said Akira Terabayashi, a researcher in Tokyo at Norinchukin Research Institute Co., the central bank for Japan’s agricultural, forestry and fishery cooperatives. “Investors maintained an appetite for buying on dips throughout this week, weighing on yields.”
The yield on the 1.2 percent bond due December 2020 fell 4.5 basis points to 1.15 percent this week in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. That’s the biggest yield drop since the week ended Oct. 8. The price gained 0.403 yen to 100.447 yen.
Ten-year yields touched 1.125 percent on Dec. 22, the lowest since Dec. 1. A basis point is 0.01 percentage point.
Ten-year bond futures for March delivery dropped 0.08 to 139.73 this week at the Tokyo Stock Exchange. The Nikkei 225 Stock Average fell 0.7 percent yesterday.
Deflation
Japan’s consumer prices excluding fresh food declined 0.6 percent from a year earlier in November, according to the median estimate of economists in a Bloomberg News survey before the government reports the data on Dec. 28.
Five-year inflation bonds yield 0.6 percentage point more than similar-maturity regular notes, according to data compiled by Bloomberg. Inflation-adjusted securities typically yield less than regular bonds because their principal payment increases at the same rate as inflation. Deflation enhances the value of the fixed payments on debt.
Demand for bonds was limited on prospects signs of U.S. economic recovery will damp demand for safer assets.
The Conference Board’s sentiment index gained to 56.3 this month from 54.1 in November, according to the median estimate of economists in a Bloomberg News survey before the data due Dec. 28. U.S. household purchases advanced 0.4 percent last month after a 0.7 percent increase in October, the Commerce Department reported on Dec. 23.
“Long-term yields in Japan and the U.S. have shifted to a higher range,” said Akitsugu Bandou, a senior economist in Tokyo at Okasan Securities Co. “Investors find it hard to make big moves as foreign markets start the holiday. Japan’s bonds are highly correlated to the U.S. market.”
Treasury 10-year yields gained four basis points to 3.39 percent on Dec. 23.
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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