Japan Bond Investors Expect Extra Sales From February

Japan’s bond investors and dealers said there’s scope for the government to boost debt sales starting next month as Prime Minister Shinzo Abe’s fiscal stimulus measures are set to increase public borrowing that’s grown to more than twice the size of the economy.

The Ministry of Finance told the money managers during meetings today that extra spending for this fiscal year and the budget for the next year will require additional bond issuance to the market, an official told reporters in Tokyo. Most of the participants recommended the ministry selling more debt than planned from February, according to the official, who spoke on condition of anonymity.

The Japanese government will announce an extra budget of about 12 trillion yen ($136 billion) for the fiscal year through March 31 to stimulate the nation’s shrinking economy, the Yomiuri newspaper and Kyodo News said Jan. 7. Abe told business leaders the same day that he hopes to compile the measures this week.

The institutional investors, which include life insurance companies and banks, are divided on which maturities of debt to be added, the official said. Most of the primary dealers who are obliged to bid at the government auctions see the market’s ability to absorb more 5-year notes on the back of the Bank of Japan’s buying of short-term securities, according to the official.

Once the extra budget is finalized, the ministry will revise its bond-issuance plan for fiscal 2012, in which it said debt sales to the market will total 149.7 trillion yen, according to the official.

Benchmark Bond Yield

Japan’s benchmark 10-year bond yield fell half a basis point, or 0.005 percentage point, to 0.83 percent as of 6:20 p.m. in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. Government debt has probably climbed to 237 percent of its annual economic output last year, the most in the world, according International Monetary Fund estimates.

The Finance Ministry didn’t discuss a resumption of sales of inflation-indexed bonds at today’s meetings, said the official. The ministry has said Japan may resume issuance of the so-called linkers the end of the current fiscal year.

(Corrects basis point reference in the sixth paragraph.)
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