Japan’s Benchmark Bonds Gain on Abe Easing Call; Long Debt Falls

Yields on Japan’s benchmark 10-year bonds fell, matching the lowest level since July, on prospects the nation’s elections next month will hand power to the opposition party that advocates more aggressive monetary easing.

Longer-dated Japanese government bonds, more sensitive to the inflation outlook, declined, pushing the yield spread between 10- and 20-year securities to the widest since 1999. Liberal Democratic Party head Shinzo Abe, leading in polls to become prime minister in the next election, reiterated his call for the Bank of Japan to continue easing until 3 percent inflation is achieved and said the bank should cut benchmark interest rates to zero or lower.

“Abe’s comments on negative interest rates sparked buying of medium-term JGBs,” said Tadashi Matsukawa, who oversees the equivalent of $1.7 billion as head of fixed-income securities at PineBridge Investments Japan Co.

The yield on the 10-year note fell 1 1/2 basis points to 0.735 percent as of 4:25 p.m. in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The rate earlier touched 0.73 percent, matching the lowest level since July 26. Ten-year bond futures for December delivery advanced as much as 0.19 to 144.66, the most since June 2003.

The 20-year yield added one basis point to 1.675 percent, bringing the gap with 10-year rate to 94 basis points, the most since 1999. The yield on 30-year notes gained two basis points to 1.935 percent.

A sale of 20-year debt saw bids worth 3.67 times the 1.2 trillion yen ($14.8 billion) of securities on offer today, compared with the so-called bid-to-cover ratio of 3.81 in the last sale in October.

Japanese Prime Minister Yoshihiko Noda said yesterday he will dissolve parliament, triggering an election that polls indicate his ruling Democratic Party of Japan may lose. The vote for the lower house will be held Dec. 16, acting DPJ secretary-general Jun Azumi said last night.