Japan’s 10-Year Yield Falls to Lowest Since 2003 on BOJ

Japan’s government bonds declined after German Chancellor Angela Merkel’s government backed the European Central Bank’s bond-buying plan, spurring a rally in global stocks that damped demand for safer assets.

The benchmark 10-year yield was set to climb the most in almost five months after the Nikkei newspaper reported the Bank of Japan (8301) will probably avoid adding to monetary stimulus at a two-day meeting starting Aug. 8. Japan’s Ministry of Finance sold 399.4 billion yen ($5.1 billion) of 40-year debt today with demand for the bonds higher than the average of past 10 sales.

“Bonds are being sold after Germany expressed its support for the ECB’s bond-purchase measures,” said Makoto Suzuki, a senior bond strategist at Okasan Securities Co., one of the 25 primary dealers obliged to bid at government debt sales. “The result of today’s auction is good.”

Ten-year yields climbed 4 1/2 basis points to 0.78 percent at 4:37 p.m. in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. That would be the biggest gain since March 15 on a closing basis. The rate slid to 0.72 percent on July 23, the lowest level since June 2003.

Thirty- and 20-year rates increased 3 1/2 basis points to 1.815 percent and 1.6 percent respectively. The MSCI Asia Pacific Index (MXAP) of shares added 0.6 percent, following a 0.7 percent advance in MSCI’s World Index yesterday.

ECB Plan

Merkel’s government backed ECB President Mario Draghi’s proposals on bond buying to help bring down borrowing costs in Spain and Italy. Germany is “not worried” by Draghi’s announcement of Aug. 2, deputy Merkel spokesman Georg Streiter said in Berlin yesterday, when asked whether the government is concerned that ECB independence might be compromised.

Japan’s sale of 40-year debt drew bids valued at 3.48 times the amount on offer. The ratio, down from 3.99 at the previous auction in May, is higher than the 10-sale average of 3.3.

The BOJ is likely to leave unchanged its view that Japan’s economy is picking up moderately, the Nikkei reported today without saying where it got the information.

A system error at the Tokyo Stock Exchange halted trading of Topix index futures, Japanese government bond futures and options today. The failure lasted from about 9:20 a.m. to 10:55 a.m. local time, the bourse operator said.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Yumi Ikeda in Tokyo at yikeda4@bloomberg.net.

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

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