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Japan’s Bonds Rise as Stocks Erase Gains, Auction Demand Climbs

Japan’s 10-year bonds advanced for a second day as stocks erased earlier gains, increasing demand for the relative safety of government debt.

Two-year notes rose as bids climbed at an auction of the securities after current-account deposits held by private financial institutions at the Bank of Japan reached a record yesterday. Gains in bonds were limited as the central bank refrained from pumping emergency funds into the financial system for a second day, after more than a week of injections to calm markets following the nation’s biggest earthquake on March 11.

“Bonds are moving in tandem with stocks,” said Katsutoshi Inadome, a strategist in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co., a unit of Japan’s largest bank. “The auction’s results were very strong. The BOJ has made aggressive moves, while it was a surprise they took a pause.”

The yield on the benchmark 10-year bond fell one basis point to 1.20 percent at 3:11 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.3 percent security maturing in March 2021 rose 0.089 yen to 100.845 yen. A basis point is 0.01 percentage point.

Ten-year bond futures for June delivery advanced 0.19 to 139.92 as of the afternoon close in Tokyo. The Nikkei 225 Stock Average slid 0.2 percent after rising as much as 0.6 percent.

Auction Results

Today’s sale of 2.6 trillion yen ($32 billion) in two-year notes drew bids worth 4.77 times the amount on offer, up from a ratio of 3.70 at the offering in February. The lowest price at today’s auction was 99.935 yen, above the median forecast of 99.930 in a Bloomberg News survey of 14 traders.

The so-called tail, or the gap between the lowest and the average price, was 0.004 yen, down from 0.007 at the prior sale. The longer the tail, the less bids are around the average price.

Two-year yields fell a basis point to 0.205 percent.

The Bank of Japan’s 40 trillion yen of successive one-day cash injections from March 14 to 22 helped to more than double lenders’ deposits at the central bank to 41.8 trillion yen as of yesterday. The central bank projects that those deposits will increase to 42.6 trillion yen today.

“It seems the BOJ has injected enough liquidity to make it through the end of the fiscal year” on March 31, said Takafumi Yamawaki, chief rate strategist at JPMorgan Chase & Co. in Tokyo.

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