Japan’s Bonds Decline on Bets Recent Gains Were Excessive

Japan’s government bonds fell, pushing up 10-year yields from a record low on speculation recent gains on the securities were excessive.

Bond futures plunged, causing the Tokyo Stock Exchange to issue circuit breakers twice for the contracts. Yields on 10-and 30-year debt earlier sank to record lows following the Bank of Japan’s decision yesterday to extend the maturity of securities it buys to 40 years and double monthly purchases. Twenty-year yields touched the lowest level in a decade.

“The market will remain volatile for some time,” said Shuichi Ohsaki, strategist Tokyo at Bank of America Merrill Lynch. “There’s a clash of interest between those who are expecting further gains and those who want to take profits.”

The yield on the benchmark 10-year note rose five basis points, or 0.05 percentage point, to 0.505 percent at 2:31 p.m. in Tokyo, after earlier falling as much as 14 basis points to 0.315 percent, the lowest on record, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker.

Ten-year bond futures for June delivery slid 1.60 to 144.44 after earlier reaching 146.44, the highest on record.

The 14-day relative strength index on the contracts reached the 70 level yesterday that some traders see as a sign an asset’s price may reverse direction after rising too rapidly.

Yields on 30-year bonds had touched 0.925 percent, the lowest on record, while the 20-year rate reached 0.845 percent, a level unseen since June 2003. The 30-year yield fell 2 1/2 basis points to 1.225 percent from yesterday, and 20-year rates were little changed at 1.135 percent.

The BOJ said yesterday it will buy 7.5 trillion yen ($77.8 billion) of bonds a month and extend the average maturity of the debt it purchases to seven years from about three years. The central bank “temporarily suspended” the self-imposed rule to keep the value of its bond holdings below the amount of cash in circulation.

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