Japan’s Bonds Rise as Stocks Drop; Five-Year Notes Rebound

Japan’s government bonds rose, pushing the 10-year yield down below 0.6 percent for the first time in three sessions, as declines in domestic stocks boosted demand for haven assets.

The five-year notes rebounded even after sales of the securities drew the weakest demand since December 2011. The gap between the average and low prices at the auction was the widest since June 2008. The Bank of Japan said today it will meet with market participant tomorrow, following a separate meeting on April 11 where the central bank said it would respond flexibly to rising volatility. Japan’s Topix Index of shares slid 1.3 percent.

“The five-year auction was a touch weaker than expected,” said Takuma Sugawara, a senior JGB strategist in Tokyo at Societe Generale SA, one of the 24 primary dealers obliged to bid at government bond sales. “We didn’t see a significant lengthening of the tails and the results on the whole weren’t too bad. The bond market will probably stabilize gradually.”

The yield on benchmark 10-year bonds fell as much as 6 1/2 basis points, or 0.065 percentage point, to 0.575 percent and was at 0.59 percent at 3:19 p.m. in Tokyo. It slid to a record low 0.315 percent on April 5, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. Ten-year bond futures for June delivery rose 0.55 to 144.09.

The five-year rate dropped 1 1/2 basis point to 0.250 percent. The 20-year rate dropped three basis points to 1.475 percent.

Auction Tail

Today’s sale of about 2.5 trillion yen ($25.6 billion) of five-year notes attracted bids valued at 3.09 times the amount available, the weakest demand since December 2011, according to Finance Ministry data. The so-called tail was 0.05, the longest since June 2008. The ministry will offer about 1.2 trillion yen of 20-year notes on April 18.

“Bond futures are being bought back as excessive concern about the auction has eased,” said Katsutoshi Inadome, a fixed-income strategist in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co. “The results were reasonable given the current environment.”

BOJ Governor Haruhiko Kuroda said today he is keeping the central bank’s exit strategy in mind after announcing on April 4 it will double monthly debt purchases to 7.5 trillion yen.

The central bank’s current-account balance rose to a record 61.4 trillion yen yesterday, a statement from the BOJ showed today.

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