Japanese Bonds Fall, Yields at Three-Month High as Stocks Climb

Japanese government bonds fell, pushing 10- and 20-year yields to the highest levels in three months, as the yen’s drop to its weakest since 2008 and gains in local shares curbed demand for haven assets.

Benchmark yields were still set for a fourth annual drop, matching the longest run on record, as the Bank of Japan continues its record stimulus. The BOJ bought 640 billion yen ($6.1 billion) of government bonds today. Japan’s markets will be closed from tomorrow for holidays and reopen Jan. 6.

“Stock gains, yen weakness and the rise in U.S. yields are adding upward pressure to JGB yields,” said Masaru Hamasaki, a senior strategist at Tokyo-based Sumitomo Mitsui Asset Management Co., which oversees about 11 trillion yen. “Even as the Bank of Japan buys massive amounts of JGBs, it wouldn’t surprise me if yields rise as the economy recovers. The 10-year yield below 0.7 percent is too low.”

Japan’s 10-year yield rose 3 basis points, or 0.03 percentage point, to 0.735 percent as of 3:36 p.m. in Tokyo, after touching 0.74 percent, the highest since Sept. 11, according to Japan Bond Trading Co.

Twenty-year yields climbed 1.5 basis points to 1.58 percent, after reaching 1.595 percent, the most since Sept. 20. Thirty-year yields added 2.5 basis points to 1.73 percent.

The Topix index of shares gained 1 percent, closing at the highest level since July 2008. The yen touched 105.41 per dollar earlier today, the weakest since October 2008.

The Bank of Japan buys more than 7 trillion yen of JGBs per month to spur growth and end 15 years of deflation. The BOJ’s operation today to purchase bonds maturing in three years to five years drew bids valued at 4.73 times the amount of debt that the central bank offered to buy, up from 3.81 at the previous operation for the tenors. The buying of bonds maturing in one year to three years had a bid-to-cover ratio of 3.19, down from 3.86 at the prior offer.

Japan’s sovereign bonds have returned 2.3 percent this year compared with a 3.3 percent loss in U.S. Treasuries, based on data compiled by Bloomberg.

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