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Japanese Bond Yields Set for Biggest Jump Since 2008 on Stocks

May 10 (Bloomberg) -- -- Japan’s government bonds tumbled as 10-year yields headed for their biggest jump since 2008, after the yen weakened below 101 per dollar and a surge in equities damped demand for the relative safety of debt.

Benchmark yields touched the highest level in almost three months after the Standard & Poor’s 500 Index of U.S. shares reached a record this week and Treasury rates increased. A Federal Reserve Bank president said he would favor reducing the Fed’s debt purchases next month. The Tokyo Stock Exchange temporarily halted bond futures trading after prices tumbled.

“Japan’s bonds are being sold amid gains in Treasury yields in addition to yen weakness and higher stocks,” said Daisuke Uno, the Tokyo-based chief strategist at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-largest bank by market value. “A selling catalyst is speculation the Federal Reserve will reduce asset purchases.”

The yield on the benchmark 10-year note rose nine basis points to 0.68 percent at 4:10 p.m. in Tokyo, after climbing as high as 0.7 percent, the most since Feb. 25, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The rate was set for its biggest one-day increase since September 2008. A basis point is 0.01 percentage point.

Thirty-year rates gained 5 basis points to 1.71 percent, while 20-year yields increased 5 1/2 basis points to 1.565 percent. Five-year rates added 5 basis points to 0.275 percent.

Ten-year bond futures for June delivery slid 1.02 to 143.70 after earlier slumping to 143.43, the least since April 11. Trading was halted for about 10 minutes after the Tokyo Stock Exchange issued a circuit breaker due to price fluctuations.

International Sellers

The yen dropped 0.5 percent to 101.04 per dollar after earlier touching 101.2, the weakest since April 6, 2009. The Topix Index of Japanese shares added 2.4 percent to close at 1,210.60 in Tokyo, the highest since September 2008.

Overseas investors cut their holdings of JGBs by 3.94 trillion yen ($39 billion) in March, the most in three years, according to a report today from the Ministry of Finance.

Separate ministry data showed Japanese money managers acquired a net 514.3 billion yen of overseas bonds and notes in the two weeks ended May 3. They had cut holdings of these securities in the six weeks through April 19, the longest run of net sales since January 2010.

Japanese debt has lost 4.7 percent in dollar terms since the Bank of Japan announced an expansion of monetary stimulus on April 4, according to a Bank of America Merrill Lynch index.

In the U.S., Fed Bank of Philadelphia President Charles Plosser said unemployment will probably fall to 7 percent at the end of 2013 and he would favor reducing the central bank’s $85 billion monthly pace of bond purchases next month.

To contact the reporter on this story: Yumi Ikeda in Tokyo at yikeda4@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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