Treasuries Rally as Japan Yields Extend Record Low on Safety Bid

  • U.S. debt supported as China, Japan have weaker economic data
  • Japan 10-year yield declines to as low as minus 0.1%

Treasuries gained with Japanese bonds, whose 10-year yields extended their push below zero, as stock-market declines drove demand for the relative safety of sovereign debt.

The world’s two biggest bond markets advanced after official data showed Chinese exports tumbled and Japan’s economy contracted, sending stocks in the region lower. The move marked a revival of the rush to government securities in January and February as shares around the world tumbled. Yields on Japan’s 30-year sovereign debt plunged 22 basis points, falling to 0.475 percent after earlier touching a record low of 0.468 percent.

Japanese government bonds are driving global debt markets, Goldman Sachs Group Inc. said last week, basing its conclusion on an analysis of the securities’ volatility. As yields fell to records in January in Japan, local investors loaded up on the largest quantity of French sovereign debt since mid-2014, data released overnight by the Bank of Japan and the nation’s finance ministry showed. In the same month, Chinese investors bought 1.97 trillion yen ($17.4 billion) of Japanese money-market securities in January, the most on record since 2005.

“Commodities and risk assets are stalling,” said Barra Sheridan, a rates trader at Bank of Montreal in London.  “The data wasn’t particularly positive overnight in China and Japan -- particularly China’s trade data,” which is helping Treasuries, he said. “After what went down with JGBs overnight -- it was crazy,” Sheridan said.

U.S. 10-year yields, a benchmark for interest rates around the world, fell six basis points, or 0.06 percentage point, to 1.85 percent as of 7:39 a.m. New York time, according to Bloomberg Bond Trader data. The 1.625 percent security due in February 2026 climbed 17/32, or $5.31 per $1,000 face amount, to 98.

Japanese Yields

Japan’s 10-year yield fell to an all-time low of minus 0.1 percent, according to Japan Bond Trading Co. A sale of 30-year securities drew the strongest demand in almost two years.

“The outcome of 30-year JGB auction was strong,” said Tadashi Matsukawa, the Tokyo-based head of fixed-income investment at PineBridge Investments Japan. “I’m surprised there are people out there that would buy at this level.”

Chinese exports tumbled 25 percent in dollar terms in February from a year earlier. Japan confirmed earlier data showing its economy contracted in the final quarter of 2015. The Shanghai Composite Index closed up 0.1 percent after falling by as much as 3.3 percent earlier.

“We’re seeing a flight to quality again,” said Toshifumi Sugimoto, the chief investment officer at Capital Asset Management in Tokyo.

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