U.S. 30-Year Yield Premium Over Japan Rises to Most in Two Years

  • Japanese bonds are world's best performers over three months
  • Federal Reserve, Bank of Japan take opposite policy paths

Treasury 30-year bonds pay the most versus their Japanese counterparts in two years as yields in the Asian nation extend their plunge to record lows.

Investors are snapping up Japanese bonds as an alternative to the negative interest rates being used by the nation’s central bank, while the economy contracts and inflation stagnates. The securities have returned 5.1 percent in the past three months, the best performance of 26 sovereign debt markets tracked by Bloomberg. The rally has pushed yield on maturities out to 10 years below zero.

“In the long end, we have a positive yield, so many Japanese investors are willing to buy,” said Tsutomu Komiya, a bond investor in Tokyo at Daiwa Asset Management, which oversees $119 billion. “The Japanese bond rally will continue.”

Treasuries were little changed Wednesday, with 30-year bond yields at 2.64 percent as of 11:15 a.m. in Tokyo, according to Bloomberg Bond Trader data.

The Japanese 30-year bond, which was auctioned on Tuesday, yielded 0.555 percent, based on prices from Japan Bond Trading Co. The premium investors get for buying similar-maturity Treasuries widened to 216 basis points Tuesday, the most since January 2014 based on closing prices.

Opposite Paths

Central banks in the two nations are taking opposite paths.

There’s a 68 percent chance the Federal Reserve will raise interest rates by year-end, according to data compiled by Bloomberg based on federal fund futures. The odds increased last week after a government report showed employers added more jobs in February than economists projected.

Japan’s central bank Governor Haruhiko Kuroda says he won’t hesitate to increase measures to spur the economy if needed. Gross domestic product shrank in the fourth quarter and the central bank’s preferred inflation gauge is stuck at zero, versus its target of 2 percent.

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