Japan Brexit-Fueled Bond Rally Deepens as Long Yields Near Zero

  • Ten-year note yield drops to unprecedented minus 0.22 percent
  • Twenty- and 30-year bond yields continue tumble toward zero

Japanese government bond yields tumbled to fresh records as the U.K.’s decision to leave the European Union spurred a global flight to haven assets.

The yield on the benchmark 10-year note dropped to an unprecedented minus 0.22 percent Tuesday, while that on the 20-year security slid to an all-time low of 0.045 percent. The 30-year bond yield reached a record 0.095 percent late Monday, and had yet to trade as of 9:39 a.m. in Tokyo.

“It’s unlikely that the risk-off mood will take a break during Tokyo trading hours,” said Hiroki Tsuji, a market analyst at Mizuho Securities Co. in Tokyo. “Even though bonds up to 30 years in maturity are below 0.1 percent, there is no supply coming for a while in the superlong zones, so yields will likely remain depressed.”

Yields will stay low even after the shock of Brexit subsides, bond investors said at a regular meeting with Japan’s Ministry of Finance in Tokyo Monday, according to a Ministry of Finance official who spoke on condition of anonymity in line with policy. They also said that, while Japanese bonds have become slightly expensive, any increase in yields will probably attract buyers, the official said.

More than 80 percent of the JGB market has yields below zero, as the U.K. vote exacerbated the declines wrought by the Bank of Japan’s bond-buying stimulus and negative interest rate. Yields on 10-year Treasuries are at 1.43 percent, within 6 basis points of a record low, and those on similar-dated U.K. gilts dropped below 1 percent on Monday.

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