Japan Government Bond Risk Rises to Record Amid Nuclear Radiation Crisis

The cost of insuring Japanese sovereign debt with credit-default swaps jumped to a record after a U.S. official said a crippled nuclear plant at Fukushima is releasing “extremely high” levels of radiation.

Five-year swaps on Japan increased 12 basis points to 119.5 basis points as of 2:53 p.m. in Tokyo after earlier climbing to 130, according to Citigroup Inc. That’s more than the contracts’ previous record 120.7 basis points reached on Feb. 17, 2009, according to data provider CMA in New York.

The Markit iTraxx Japan index of corporate borrowers climbed 7.5 basis points to 147.5 as of 2:53 p.m. after earlier soaring to 169, according to Citigroup and CMA.

All the water in one of the Fukushima Dai-Ichi power plant’s spent-fuel cooling pools has drained, U.S. Nuclear Regulation Commission Chairman Gregory Jaczko told a House Energy and Commerce Committee panel in Washington yesterday. Japan’s Nuclear and Industrial Safety Agency said today there is a possibility of no water at the No. 4 reactor’s cooling pool. The agency has detected no smoke or steam rising from the reactor, spokesman Hidehiko Nishiyama said.

“It’s entirely due to the lack of confidence in Japan’s nuclear plant problems,” said Mana Nakazora, chief credit analyst at BNP Paribas Securities Japan Ltd. in Tokyo. “We can’t secure power. The death toll is rising every day. There’s absolutely no incentive to buy Japan right now except for bargain hunting.”

Nervous Markets

Japan’s Finance Minister Yoshihiko Noda said today that markets are nervous as the yen reached its strongest level in the postwar era and the central bank pumped 5 trillion yen ($63 billion) into money markets. The Nikkei 225 Stock Average slid 1.44 percent after earlier dropping 4.99 percent in Tokyo.

The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 2 basis points to 114.5 as of 2:03 p.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. The Markit iTraxx Australia index added 2.5 basis points to 115.5 basis points as of 4:59 p.m. in Sydney, according to Westpac Banking Corp.

Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point.

To contact the reporters on this story: Yusuke Miyazawa in Tokyo at ymiyazawa3@bloomberg.net.

To contact the editor responsible for this story: Will McSheehy at wmcsheehy@bloomberg.net

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