Japan’s Government Gets Paid to Borrow as Yields Fall Below Zero

Debt buyers gave Japan’s government a $531,000 gift at today’s treasury-bill auction in Tokyo.

The Finance Ministry’s sale of 5.7 trillion yen ($53.2 billion) in three-month debt had a record-low yield of minus

0.0037 percent as buyers paid 100.0010 yen on average for securities that mature at 100 yen. The Bank of Japan has bought bills that had negative yields in the market last month as it pushed ahead with its goal of increasing the monetary base at an annual pace of 60 trillion yen to 70 trillion yen.

“The bill yields are likely to stay below zero for the next few months,” said Noriatsu Tanji, chief rates strategist in Tokyo at RBS Securities Japan Ltd., one of the 23 primary dealers obliged to bid at government bond auctions. “As the BOJ continues to expand its monetary base toward 270 trillion yen, the supply continues to tighten in the bill market.”

Japan’s treasury-bill yields turned negative for the first in at least five years last month after the European Central Bank became the first major monetary authority to guide rates below zero. Three-month treasury bill yielded minus 0.08 percent as of 2:37 p.m. in Tokyo, while the six-month security yielded minus 0.05 percent.

Investors can make money by buying three-month bills and selling them to the central bank even if yields are negative, according to Makoto Yamashita, the Japan rates strategist in Tokyo at Deutsche Securities Inc., another primary dealer.

The BOJ’s failure to buy all 3 trillion yen of bills it sought from the market on Oct. 17 spurred speculation it will increase buying of longer-dated bonds. The central bank offered to purchase a record 3.5 trillion yen of bills on Oct. 3.

“The BOJ does not have a lower limit for the yield in bill-buying operations and that’s the biggest reason why yields turned negative,” Yamashita said. The declines in bill yields will be a supporting factor for longer-dated debt, he said.

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