Japan Government Bonds Rise as Stocks Drop, Monetary Base Grows

Japan’s government bonds rose, pushing yields on 10-year and 30-year debt to the lowest in almost two weeks, as stocks fell and the central bank said the monetary base expanded, increasing speculation more funds will flow into fixed-income securities.

The Bank of Japan unveiled a plan on April 4 to double the monetary base, a measure of money in the economy, in two years through increased buying of bonds. The BOJ said today the amount jumped 23 percent last month from a year earlier, the most in two years, indicating progress toward its goal.

The yield on the benchmark 10-year bond fell three basis points, or 0.03 percentage point, to 0.56 percent as of 5:07 p.m. in Tokyo, after touching 0.555 percent, the lowest since April 19, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker.

Benchmark 10-year bond futures for June delivery rose 0.37 to 145.12 at the 3 p.m. close on the Tokyo Stock Exchange after earlier touching 145.15, the highest level since April 8.

The 30-year yield declined as much as two basis points to 1.56 percent, a level unseen since April 19. The five-year rate dropped to 0.215 percent, the lowest since April 12.

The Nikkei 225 Stock Average slid 0.8 percent, the biggest decline since April 18, boosting demand for the relative safety of government debt.

The BOJ last month increased monthly bond purchases to exceed 7 trillion yen ($72 billion) at Governor Haruhiko Kuroda’s first policy meeting in charge. The central bank said it will bolster bond buying to double the monetary base -- cash in circulation and the money that financial institutions have on deposit at the central bank -- by the end of 2014.

BOJ Operation

Bonds also gained after a central-bank operation to buy the securities from the market boosted demand.

The BOJ offered to buy 900 billion yen in government debt in two batches today. The purchase of bonds maturing in 5 to 10 years drew bids valued at 2.86 times the amount of debt purchased, down from 3.83 at the previous operation for the tenors, central bank figures showed. The buying of bonds with more than 10 years to maturity had a bid-to-purchase ratio of 2.26, lower than the 2.37 at the prior operation.

“The selling pressure for JGBs is easing after bid ratios at the BOJ’s operations fell,” said Tadashi Matsukawa, who helps oversee 130 billion yen in assets as head of fixed income investment at PineBridge Investments Japan Co. “I get a sense that investors are not in a hurry to sell.”