Japan Corporate Bond Risk Drops to Lowest Since 2010 on BOJ Plan

The cost of insuring corporate bonds in Japan against non-payment extended declines to the lowest level in 2 1/2 years after the central bank announced new steps last week to fight deflation, credit-default swaps show.

The Markit iTraxx Japan index fell 4 basis points to 92 basis points as of 9:12 a.m. in Tokyo, according to Citigroup Inc. prices. The gauge, which slid 7.7 basis points on April 5, is set for its lowest close since November 2010, according to data provider CMA.

Bank of Japan (8301) officials said April 4 the central bank will increase its monthly bond purchases to 7.5 trillion yen, exceeding the 5.2 trillion yen forecast by economists surveyed by Bloomberg. They also suspended a cap on some bond holdings and dropped a limit on debt maturities. They set a two-year horizon for their goal of 2 percent inflation.

The Markit iTraxx Australia index fell 1.5 to 117.9 as of 10:08 a.m. in Sydney, according to Westpac Banking Corp. (WBC) prices. The benchmark is on track for its lowest close since the current series of the index started trading on March 20, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 1 to 121 as of 8:48 a.m. in Hong Kong, Westpac prices show. The measure last closed lower on April 4.

Credit-default swap indexes are benchmarks for insuring 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.

To contact the reporter on this story: Benjamin Purvis in Sydney at bpurvis@bloomberg.net

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net

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