Japanese Bonds Fall for Second Day After Demand Ebbs at Auction

Japanese bonds fell for a second day, with yields set for their highest close in almost a year, as demand waned at a 40-year debt auction today.

Investors at the 399.9 billion yen ($3.9 billion) sale bid for 2.64 times the amount of debt offered, the lowest level since August 2011. The bonds sold at a 1.955 percent yield. Traders expected 1.93 percent, based on a Bloomberg News survey.

“Some people had expected higher yields to draw demand from investors and thus a better auction result,” said Akito Fukunaga, the chief rates strategist in Tokyo at Royal Bank of Scotland Group Plc’s RBS Securities unit, one of the 24 primary dealers that underwrite the government debt. “Bad auction results” drove the market down, he said.

Japan 10-year yields increased four basis points to 0.88 percent as of 3:49 p.m. in Tokyo, according to Japan Bond Trading Co. The price of the 0.6 percent note due in March 2023 fell 0.353 yen, or 353 yen per 100,000 yen face amount, to 97.468 yen. A basis point is 0.01 percentage point. The last time the market closed at this yield was in June 2012.

Japanese government bonds have fallen 1.5 percent this month as of yesterday, according to Bank of America Merrill Lynch indexes. The Topix index of stocks returned 9 percent, according to data compiled by Bloomberg, curbing demand for the haven of debt.

‘Narrow Line’

Komal Sri-Kumar, the founder of Sri-Kumar Global Strategies Inc., an economic consulting company in Santa Monica, California, said Japan’s debt is so large that it threatens to undermine the bond market.

Japan’s borrowings are equal to 214 percent of the nation’s gross domestic product, the most in the world, according to data compiled by Bloomberg. The 10-year yield climbed as high as 0.92 percent this month.

“If suddenly it goes to 1.5 or 2 percent, you have people who are exiting Japan government bonds,” Sri-Kumar said on Bloomberg Television’s “Asia Edge” with Susan Li and Rishaad Salamat. “You have some amount of rotation” from bonds to stocks. “The rotation can become a flight. The distinction between rotation and completely fleeing the yen, fleeing the Japan government bonds, is a very narrow line.”

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Yumi Ikeda in Tokyo at yikeda4@bloomberg.net.

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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