Japanese Bonds Advance as 5-Year Auction Demand Climbs to Record

Japanese government bonds advanced, pushing benchmark 10-year yields to a three-month low, after an auction of five-year notes drew the highest demand on record.

Lead bond futures rallied to the highest since May as the bid-to-cover ratio at today’s sale rose to 5.514 times, exceeding the level of 5.506 reached in October that was the highest since government began issuing the debt in 2000. Data showed machine orders fell in June, a day after a report revealed the economy grew less than economists forecast. Minutes of the Bank of Japan’s July meeting released today showed policy makers expected the economy to recover moderately.

“I’m surprised how strong the five-year auction was,” said Tetsuya Miura, the chief bond strategist in Tokyo at Mizuho Securities Co., one of the 23 primary dealers obliged to bid at Japan’s debt auctions. “Five-year notes were underperforming other maturities. The demand-supply picture may change.”

Japan’s 10-year yields slid 1 1/2 basis points, or 0.015 percentage point, to 0.73 percent, at 2:20 p.m. in Tokyo, according to Japan Bond Trading Co. That was the least since May 13. The price of the 0.8 percent note due June 2023 added 0.139 yen to 100.643 yen. The five-year yield fell one basis point to 0.275 percent, matching the lowest since July 24.

Ten-year bond futures for September delivery reached 144.24 in Tokyo, the most since May 10, before trading at 144.16.

Machine orders declined 2.7 percent in June from the previous month, when they climbed 10.5 percent, data released today by the Cabinet Office showed. It said yesterday gross domestic product expanded an annualized 2.6 percent in the second quarter, compared with forecasts for 3.6 percent growth.

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