Investors Suggest Fewer Inflation-Linked Bond Buybacks, MOF Says

Many investors said buybacks of inflation-indexed bonds should be reduced amid rising inflation expectations, according to Ministry of Finance officials.

Some investors and primary dealers obliged to bid at government debt sales suggested cutting monthly purchases of so-called linkers to 20 billion yen ($209 million) from 30 billion yen, ministry officials told reporters in Tokyo today after consulting with bond auction participants. Others suggested eliminating buybacks in months when the Bank of Japan is conducting market operations, the officials said.

Japan’s five-year breakeven rate, derived from the difference between government bond yields and those on inflation-linked debt, rose to 1.42 percentage points today, the highest on record going back to 2009.

A majority of the investors and primary dealers said they expect yields to continue to decline as the central bank begins additional monetary easing under the next central bank governor.

Prime Minister Shinzo Abe has nominated Asian Development Bank President Haruhiko Kuroda as the next Bank of Japan governor to spearhead a drive to boost growth and achieve 2 percent inflation.

Japan’s benchmark 10-year bond yield fell 2 1/2 basis points, or 0.025 percentage point, to close at 0.65 percent today, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker.

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