Japan 5-Year Bond Yields Touch Record Low on Auction Demand, BOJ

Japan’s bonds rose, sending the five-year yield back to the lowest on record, after demand increased at an auction of two-year notes and amid speculation the central bank will expand debt purchases.

Bonds gained for the first time in four sessions after data showed Japan’s industrial production grew by less than forecast. The Bank of Japan could add further stimulus if warranted, Deputy Governor Hirohide Yamaguchi said today. The government sold 2.49 trillion yen ($27 billion) of two-year notes, attracting bids worth 10.13 times the amount on offer, higher than 9.73 in the previous auction.

“The auction passed without any problem since the BOJ will be buying two-year notes through its asset-purchase program,” said Makoto Suzuki, a senior bond strategist in Tokyo at Okasan Securities Co., one of the 24 primary dealers obliged to bid at government debt sales.

The benchmark 10-year yield fell two basis points, or 0.02 percentage point, to 0.75 percent as of 3:17 p.m. in Tokyo. The 0.8 percent security maturing in December 2022 added 0.18 yen to 100.459, according to Japan Bond Trading Co., the country’s largest inter-dealer debt broker. Lead futures on the securities rose 0.22 yen to 144.28.

The five-year rate slid 1 1/2 basis points to 0.14 percent, matching the lowest on record reached on Jan. 22. Yields on 30-year bonds declined 2 1/2 basis points to 1.98 percent.

The BOJ last week adopted the government’s requested 2 percent inflation target without a deadline and said it would wait until 2014 to start open-ended asset purchases. Currently, the bank buys securities such as government bonds maturing in one to three years and exchange-traded funds through a fund targeted to reach 76 trillion yen in assets in December 2013.

‘Further Accommodation’

“It could be the case that further accommodation will be pursued,” Yamaguchi, whose term ends in March, said in a speech in Nagasaki.

Industrial production in Japan rose 2.5 percent last month from November, the Trade Ministry said in Tokyo today. The median estimate of economists in a Bloomberg News survey was for a 4.1 percent gain.

The Federal Reserve said yesterday it will continue its bond purchases as growth in the world’s largest economy stagnated. Gross domestic product fell at a 0.1 percent annual rate in the fourth quarter, weaker than any economist forecast in a Bloomberg survey.

“There are some doubts cast on the overly optimistic outlook for the U.S. economy” said Shuichi Ohsaki, a strategist in Tokyo at Bank of America Merrill Lynch. “Sentiment around bonds is improving as stocks fall and yen stabilizes.”

-- Editors: Rocky Swift, Jonathan Annells