U.S. Yield Over Japan Double Year-Ago Level as BOJ Holds Policy

The extra yield Treasuries pay over Japanese bonds doubled from a year ago as the Bank of Japan said it’s sticking to its plan to push down borrowing costs.

Futures contracts indicate traders expect the Federal Reserve to raise U.S. interest rates in September 2015 as the economy improves. The central bank is scheduled to issue the minutes of its March meeting tomorrow, after making a third cut to the debt-purchase program it uses to support the economy. The BOJ will probably boost stimulus in July, according to a survey of economists. The U.S. plans to sell $30 billion of three-year notes today.

“The BOJ will continue to ease monetary policy while the Fed continues to taper,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest publicly traded bank as measured by market value. “That will lead to a larger spread.”

U.S. 10-year yields were little changed at 2.71 percent as of 6:47 a.m. in London, according to Bloomberg Bond Trader prices. The figure compares with the average over the past decade of 3.46 percent. The price of the 2.75 percent security due in February 2024 was 100 3/8.

Treasuries yielded 107 basis points more than Japanese bonds as of yesterday, based on the Bloomberg World Bond Indexes. The spread was 50 basis points a year ago.

Japan’s 10-year yield rose one basis point to 0.62 percent today. Australia’s fell one basis point to 4.08 percent. A basis point is 0.01 percentage point.

BOJ Decision

The BOJ announced at the conclusion of a two-day meeting today that it will maintain its plan to increase the nation’s monetary base by 60 trillion yen ($583 billion) to 70 trillion yen a year. In a Bloomberg News survey of economists conducted March 28 to April 3, 44 percent said the central bank will expand its stimulus in July.

The Fed has kept its target for overnight lending between banks in a range of zero to 0.25 percent since 2008. The implied yield on 30-day federal fund futures contracts expiring in September 2015 was 0.5 percent, indicating investors expect the target to be higher by then.

Treasuries rose yesterday as investors bet jobs growth is slow enough to deter the Fed from accelerating cuts in its bond-purchase program. U.S. debt extended a rally from April 4 when a report showed U.S. employers added 192,000 jobs last month, less than the 200,000 projected by a Bloomberg News survey of economists.

Three-Year Sale

The last three-year auction on March 11 drew bids for 3.25 times the amount offered. The average for the past 10 sales including last month’s is 3.28 times.

Primary dealers, those companies that underwrite the U.S. debt, purchased 54.6 percent of the securities, the most since June at the monthly auctions.

Three-year Treasuries have returned 0.2 percent this year, according to Bank of America Merrill Lynch indexes. Ten-year notes gained 3.7 percent, and 30-year bonds advanced 8.3 percent, the data show.

The U.S. also plans to sell $21 billion in 10-year debt tomorrow and $13 billion of 30-year bonds on April 10.

Data today will show job openings in the U.S. increased in February and optimism at small businesses rose in March, based on a Bloomberg News survey of economists.

Yusuke Ito, a senior fund manager in Tokyo at Mizuho Asset Management Co., said he prefers Treasuries due in 10 years and more, the longest part of the range of maturities known as the yield curve.

“Inflation pressures are very weak, and that’s going to drive the longer end of the curve down,” he said. Mizuho has the equivalent of $38.9 billion in assets.

The difference between yields on 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.13 percentage points. The average over the past decade is 2.21 percentage points.

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