Japanese 10-Year Bonds Trade in Afternoon After BOJ Holds Policy

Japan’s 10-year government bonds didn’t trade until the afternoon session for a second day as the Bank of Japan maintained record stimulus.

Historical price volatility on sovereign bonds remained near a record low, according to data compiled by Bloomberg, before BOJ Governor Haruhiko Kuroda is due to deliver a speech later today. Policy makers kept their pledge to buy about 7 trillion yen ($69 billion) of government debt a month. The 30-year yield dropped to a more than one-week low.

“Liquidity in the JGB market is certainly decreasing,” said Akito Fukunaga, director and chief rates strategist for Japan research at Barclays Plc, one of 23 primary dealers obliged to bid at government bond auctions. “It’s a problem for financial companies if there are no trades.”

The yield on the benchmark 10-year bond was unchanged at 0.535 percent as of 3:02 p.m. in Tokyo from yesterday, according to Japan Bond Trading Co. The price of the 0.6 percent debt due June 2024 was at 100.612. The 30-year yield slid half a basis point to 1.695 percent, the lowest since July 4. A basis point is 0.01 percentage point.

Volatility Drops

Historical price volatility on JGBs was at 0.675 percent yesterday on a 60-day basis, after dropping to a record low of 0.647 percent on June 30, according to data compiled by Bloomberg going back to December 1994. Paralysis in the sovereign market, where trading volumes as well as price swings are near record lows, will persist until at least the end of 2014, according to nine of 14 primary dealers in a Bloomberg survey taken between June 25 and July 7.

The BOJ kept its record stimulus unchanged today and forecast inflation will pick up to its 2 percent price target. The central bank stuck with its goal of an annual increase in the monetary base of between 60 trillion yen and 70 trillion yen, it said in a statement. That was in line with all 34 economists in a Bloomberg News survey.

Japan’s central bank holds almost 28 percent of 10-year government bonds, according to data compiled by Bloomberg.

Consumer prices excluding fresh food will rise 1.9 percent, excluding the effect of increased sales tax, in the year starting April 2015, the median estimates of board members showed, matching its forecast three months ago.

“Investors tend to stand by to buy JGBs rather than to sell, capping yields,” said Shuichi Ohsaki, a rates strategist in Tokyo at Bank of America Merrill Lynch, another primary dealer. “Funds from overseas are expected to keep flowing into the short-term notes in Japan.”

The value of Japanese sovereign debt reached the highest in data going back to January 2010 on July 11, according to Bloomberg Japan Sovereign Bond Index. (BJPN) The gauge has risen 1.6 percent this year.

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Yumi Ikeda in Tokyo at yikeda4@bloomberg.net

To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Naoto Hosoda, Jonathan Annells

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