Japanese Bonds Rise as 10-Year Auction Demand Reaches 2013 High

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

Lead bond futures gained after the bid-to-cover ratio at today’s sale rose to 3.74 times, the most since December’s sale. Prime Minister Shinzo Abe said today he would proceed with the first sales-tax increase since 1997, after the Bank of Japan’s quarterly Tankan survey beat analyst estimates.

“A solid auction result has given investors confidence to buy bonds,” said Makoto Yamashita, the chief Japan rates strategist in Tokyo at Deutsche Securities Inc.

Japan’s 10-year yields slid two basis points, or 0.02 percentage point, to 0.66 percent as of 4:18 p.m. in Tokyo, according to Japan Bond Trading Co. They earlier touched 0.655 percent, the least since May 10. The price of the 0.8 percent note due September 2023 added 0.188 yen to 101.308 yen.

The 30-year yield fell 2 1/2 basis points to 1.68 percent, the lowest since May 9. Ten-year bond futures for December delivery advanced 0.11 to 144.23 in Tokyo from yesterday.

Confidence among Japan’s large manufacturers rose to the highest since the early stages of the global credit crisis in 2007. The Tankan index for big manufacturers climbed to 12 in September from 4 in June, the BOJ said today. That exceeded the 7 median estimate of 30 economists surveyed by Bloomberg News.

Japan’s sales tax will be raised to 8 percent in April from 5 percent now, Abe said in Tokyo today. He said a stimulus package can reduce the negative impact of the increase. He will give a press conference at 6 p.m. in Tokyo today.

The BOJ is buying more than 7 trillion yen ($71.5 billion) of Japanese government debt each month as it attempts to end 15 years of deflation.

“The Bank of Japan’s bond buying has created favorable supply-demand conditions,” Deutsche’s Yamashita said.

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