Japan’s Bonds Drop as Stocks Jump; 30-Year Yield Most Since 2011

Japanese bonds slid after stocks started the year higher and the yen weakened to a 2 1/2-year low, damping demand for the refuge of government debt.

Thirty-year yields climbed to levels unseen since Dec. 2, 2011, tilting the so-called yield curve to the steepest level in 17 months. Japan’s newly installed Prime Minister Shinzo Abe said in a New Year’s statement that “bold” monetary policy is one of the three prongs of his economic measures.

“The domestic and overseas stock markets plus the yen’s depreciation are widening fluctuations” in bond yields for now, said Yuya Yamashita, a rates strategist in Tokyo at JPMorgan Chase & Co. Still, calm may return to the bond market amid expectations that monetary easing will increase, he said.

The yield on the 30-year bond rose to as high as 1.995 percent before trading at 1.99 percent as of 4:52 p.m. in Tokyo from 1.975 percent on Dec. 28, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.9 percent security maturing September 2042 fell 0.275 yen to 98.32. Forty-year yields added two basis points to 2.17 percent, the most since Nov. 7. Japan’s financial markets had been closed since Dec. 28 for the New Year holiday.

The benchmark 10-year rate increased four basis points to 0.835 percent, the highest since Sept. 13. The 20-year yield touched 1.79 percent, the most since April 5, before moving to 1.78 percent from 1.755 percent. The five-year yield climbed to 0.2 percent, a level unseen since Nov. 2, while the two-year rate was little changed at 0.095 percent.

Lead 10-year bond futures dropped 0.33 to 143.32 after touching 143.20, the least since May 28.

Stocks Jump

Japan’s Nikkei 225 Stock Average jumped 2.8 percent after the Standard & Poor’s 500 Index in the U.S. on Jan. 2 reached its highest close since September. The yen touched 87.91 per dollar, the weakest since July 28, 2010, extending its longest series of weekly declines since 1989. A weaker yen boosts the value of overseas sales at Japanese companies when repatriated.

Abe vowed in a Jan. 1 message to focus his newly appointed Cabinet’s efforts on reviving the country’s economy, which has shrunk almost 10 percent over the past half-decade. His Liberal Democratic Party, which swept to power in lower house elections on Dec. 16, has called for “bold monetary easing” from the central bank until inflation reaches 2 percent.

Demand for longer-dated debt waned before auctions of 10-and 30-year debt next week, according to Makoto Suzuki, a senior bond strategist in Tokyo at Okasan Securities Co.

“It’s hard to buy before the debt auctions,” he said. “From a supply-and-demand perspective, there’s a risk that long-term yields will climb.”

The Ministry of Finance will sell 2.3 trillion yen ($26 billion) in 10-year debt on Jan. 8 and 700 billion yen of 30-year bonds on Jan. 10.

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