Japanese Bonds Decline After Abe Approved as Prime Minister

Japan’s bonds declined as Shinzo Abe was approved as Japan’s prime minister today amid expectations he will deliver his pledge of more fiscal and monetary stimulus to revive growth.

Yields on the 10-year notes climbed to the highest level in almost two months as gains in the nation’s stocks sapped demand for the relative safety of government securities. Japan’s Ministry of Finance sold two-year notes in its last auction of the year today.

“In the short run, stocks are likely to rise while bonds are sold,” on expectations for Abe’s administration, said Shinji Hiramatsu, Tokyo-based senior investment manager at Sompo Japan Nipponkoa Asset Management Co. “But I don’t think it is easy for Abe’s policies to revive growth and help end deflation in the long term.”

The yield on the benchmark 10-year note gained 2 basis points, or 0.02 percentage point, to 0.785 percent as of 4:29 p.m. in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The rate is the highest since Nov. 1.

The 20-year rate rose 3 basis points to 1.745 percent, while the yield on 30-year bonds added 2 basis points to 1.955 percent.

Ten-year bond futures for March delivery declined to as low as 143.58 at the Tokyo Stock Exchange, the least since Sept. 19. The benchmark Nikkei 225 Stock Average (NKY) jumped 1.5 percent to 10,230.36, the highest close since March.

Both houses of Japan’s parliament confirmed Abe as the nation’s seventh prime minister in six years, returning him to the office he left in 2007.

‘Bold’ Easing

Abe’s Liberal Democratic Party, which swept to power in lower house elections on Dec. 16, has called for “bold monetary easing” from the Bank of Japan (8301) until 2 percent inflation in achieved. The LDP is also targeting a nominal economic growth of at least 3 percent and is planning a “large-scale” extra budget.

A sale of two-year Japanese government notes today saw bids worth 9.73 times the 2.7 trillion yen ($31.7 billion) of securities on offer today, compared with the so-called bid-to- cover ratio of 13.87 in the last auction in November.

“I see this as a good result, although the bid-to-cover ratio fell from the last sale,” said Tadashi Matsukawa, head for fixed-income securities at PineBridge Investments Japan Co. “Demand for the securities is stable on the back of expectations of the BOJ’s further easing.”

To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net

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

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