Japan’s Bonds Rise for 2nd Day Amid Concerns Over Italy, U.S.

Japan’s bonds rose for a second day as concerns Europe’s debt crisis is spreading to Italy and the U.S. economic recovery is losing momentum boosted demand for the relative safety of the Asian nation’s debt.

Benchmark yields fell to a two-week low after rates on 10-year Italian government debt soared to the highest level in more than a decade. A report today is forecast to show the U.S. trade deficit widened. Bonds also advanced as stocks slid and the yen rose to a one-month high against the dollar.

“The market is concerned the debt issue may spread from Greece to Portugal and Spain, and things will get really bad if it reaches Italy,” said Satoshi Yamada, who helps oversee $12.7 billion as manager of debt trading at Okasan Asset Management Co. in Tokyo. “Bonds are rebounding after expectations for the U.S. economic recovery proved to be short-lived.”

The yield on the 1.2 percent bond due June 2021 fell 2.5 basis points to 1.105 percent at 3:21 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price rose 0.225 yen to 100.85 yen. The yield earlier touched 1.095 percent, the lowest since June 28. A basis point is 0.01 percentage point.

Ten-year bond futures for September delivery gained 0.46 to 141.45 as of the afternoon close at the Tokyo Stock Exchange. The contracts earlier reached 141.54, the highest since June 28.

Ten-year yields on Italian debt climbed to as high as 5.71 percent yesterday, the most since September 2000.

The U.S. trade deficit widened to $44.1 billion in May from $43.7 billion in April, according to the median estimate of economists in a Bloomberg News survey before today’s data.

The Nikkei 225 Stock Average fell 1.4 percent. The yen touched 79.84 per dollar, the highest since June 9. A stronger yen lowers the value of overseas income at Japanese companies when repatriated.

Bank of Japan Governor Masaaki Shirakawa and his policy board left the benchmark lending rate between zero and 0.1 percent at a meeting in Tokyo today. They also kept unchanged a 10 trillion yen ($125 billion) fund to buy assets such as corporate bonds and exchange-traded funds, while raising the central bank’s economic assessment for a second month.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE