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Japan’s Bonds Decline as Yen Weakness, Stock Gains Sap Demand

-- Japan’s government bonds fell, pushing 10-year yields to the highest in almost three months, after a slide in the yen past 101 per dollar and a surge in equities damped demand for the relative safety of debt.

Benchmark yields climbed as much as 11 basis points, the biggest intraday surge since April 5, after the Standard & Poor’s 500 Index of U.S. shares touched a record and Treasury rates reached a five-week high. U.S. bonds slid after a Federal Reserve Bank president said he would favor reducing the Fed’s bond purchases next month. The Tokyo Stock Exchange temporarily halted bond futures trading after prices tumbled.

“Japan’s bonds are being sold amid gains in Treasury yields in addition to yen weakness and higher stocks,” said Daisuke Uno, the Tokyo-based chief strategist at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-largest bank by market value. “A selling catalyst is speculation the Federal Reserve will reduce asset purchases.”

The yield on the benchmark 10-year note rose 10 basis points to 0.69 percent at 2:52 p.m. in Tokyo, after climbing to as high as 0.7 percent, the most since Feb. 25, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. Thirty-year rates gained 5 1/2 basis points to 1.715 percent, while 20-year yields increased six basis points to 1.57 percent. Five-year rates added 5 1/2 basis points to 0.28 percent. A basis point is 0.01 percentage point.

Ten-year bond futures for June delivery slid 0.95 to 143.77 earlier slumping to 143.43, the least since April 11. Trading was halted for about 10 minutes after the Tokyo Stock Exchange issued a circuit breaker due to price fluctuations.

International Sellers

The yen dropped 0.4 percent to 101 per dollar after earlier touching 101.2, the weakest since April 6, 2009. The Topix Index of Japanese shares added 2.4 percent, set for the highest close since September 2008.

Overseas investors cut their holdings of JGBs by 3.94 trillion yen ($39 billion) in March, the most in three years, according to a report today from the Ministry of Finance.

Separate ministry data showed Japanese money managers acquired a net 514.3 billion yen of overseas bonds and notes in the two weeks ended May 3. They had cut holdings of these securities in the six weeks through April 19, the longest run of net sales since January 2010.

Japanese debt has lost 4.7 percent in dollar terms since the Bank of Japan announced an expansion of monetary stimulus on April 4, according to a Bank of America Merrill Lynch index.

In the U.S., Federal Reserve Bank of Philadelphia President Charles Plosser said unemployment will probably fall to 7 percent at the end of 2013 and he would favor reducing the Fed’s $85 billion monthly pace of bond purchases next month.

To contact the reporter on this story: 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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