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Japan’s Yields ‘Have Reached Their Peak,’ HSBC Says

Dec. 3 (Bloomberg) -- Japanese bond yields are likely to decline into next year as a worsening global economy boosts demand for government debt, HSBC Securities Japan Ltd. said.

Benchmark yields may fall as low as 0.9 percent in the first half of 2011 as the end of stimulus measures in Japan such as subsidies for energy-efficient cars lead to slower growth, said Seiji Shiraishi, chief economist at HSBC in Tokyo. Japan’s gross domestic product will shrink in the three months through December, according to a survey released by the government-affiliated Economic Planning Association.

“Long-term yields have already reached their peak after a two-month rally,” Shiraishi said. “Yields will fluctuate at around 1.1 percent and may fall to the 0.9 percent level in the first half of next year.”

Japan’s benchmark 10-year bond yielded 1.19 percent as of the 11:05 a.m. morning close in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield has risen from a seven-year low of 0.82 percent set on Oct. 6. It reached 1.2 percent yesterday for the first time since June.

The easing of uncertainty over the global economic outlook has spurred bond yields to climb in Japan and the U.S. since October, Shiraishi said.

Stocks rose and Treasuries declined yesterday after a report showed U.S. companies added more workers than economists forecast in November. Still, the recent improvement in the labor market won’t be enough to push down the unemployment rate, Shiraishi said.

Household Spending

Bond yields are likely to drop as U.S. household spending stalls and inflation slows, helping cap Japanese 10-year rates at 1.2 percent, he said.

Japan’s economy grew at an annual 3.9 percent pace in the three months ended Sept. 30, the Cabinet Office said Nov. 15. GDP is likely to contract at a 0.9 percent annualized pace in the three months through December, the Economic Planning Association survey forecast.

Bonds will also be supported as Japanese banks have almost finished reducing their positions in domestic bonds, which will ease upward pressures on yields, Shiraishi said.

Japan’s 10-year yields will decline to 1.06 percent by the end of the year before rising to 1.21 percent by June 30, according to a Bloomberg News survey of financial companies with the latest estimates given the heaviest weightings.

Related News and Information: Stories on Japanese government debt: {NXTW NI JPB <GO>} Stories on Japan’s debt sales: {NXTW NI 9715 <GO>} Japan’s 10-year yield graph: {GJGBBNCH <INDEX> GPC <GO>}

To contact the reporter on this story: Nobuyuki Akama in Tokyo at akam@bloomberg.net.

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

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