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Prudential Says 12-16 Year Japanese Bonds Look Attractive

Japanese government bonds with maturities from 12 to 16 years look attractive after the Bank of Japan’s monetary easing lowered yields on shorter-dated debt, Prudential Investment Management Japan Co. said.

The BOJ on Sept. 19 unexpectedly expanded its asset purchase fund by 10 trillion yen ($129 billion) to 55 trillion yen, seeking to counter an increasing danger of contraction in the world’s third-largest economy. Yields on debt with up to three years of maturity have fallen to about 0.1 percent, matching the upper limit of the central bank’s target rate.

“The BOJ’s monetary easing is keeping the short to middle term bond yields at low levels,” said Kenji Sakaguchi, who oversees 7.6 trillion yen of debt as chief investment officer at Prudential in Tokyo. “Investors may look at the 15-year JGBs that are relatively cheap.”

Yields on bonds with 15 years to maturity rose two basis points from yesterday to 1.27 percent at 2:27 p.m. in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The debt offers a 50 basis-point premium over 10-year bonds at 0.77 percent, compared with the average over the past decade of 33 basis points. Ten-year rates touched 0.72 percent on July 23, the lowest since June 2003.

The yield curve has been steepening since the start of this year partly because Japan’s life insurers, the biggest buyers of the nation’s longer-term bonds, shifted to foreign debt and started selling fewer products, Sakaguchi said. Nippon Life Insurance Co., Japan’s biggest life insurer, said in April that it would reduce the amount of new money it allocates to domestic bonds by 30 percent this fiscal year.

“It’s possible investors who think the 10-year yields are too low will start buying longer securities,” said Sakaguchi, who expects the 10-year rate to remain in a range between 0.7 percent to 1 percent in the next six months.

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