Japan’s 10-Year Bond Yield Rises to Zero as Treasuries Attract

  • Treasury 10-year spread to Japan widened to most since 2014
  • Mood in the bond market is bad, MassMutual’s Shimamura says

Japan’s 10-year bond yield rose to zero for the first time in almost two months amid speculation investors will be drawn to the higher payments Treasuries offer following Donald Trump’s election in the U.S.

The extra yield from 10-year Treasuries compared to similar-maturity Japanese government bonds widened to about 2.28 percentage points on Monday, the most on a closing basis since January 2014. The payments on U.S. debt have climbed over the past week on concern increased spending by Trump’s administration will spur inflation and lead the Federal Reserve to raise interest rates.

“Why don’t we invest in the U.S. and forget about JGBs?" said Kazuaki Oh’E, the head of fixed income at CIBC World Markets Japan Inc. in Tokyo.

Japan’s 10-year yield climbed 1 1/2 basis points to zero as of 4:27 p.m. in Tokyo, according to Japan Bond Trading Co. It has rebounded from the record low of minus 0.3 percent set in July. The nation’s central bank said in September it aims to anchor the yield at about zero.

A sale of five-year debt Tuesday drew bids for 3.56 times the amount of debt available, less than the average of 3.88 per the prior 10 sales. The government plans to auction 20-year debt on Thursday.

“The mood is bad,” said Satoshi Shimamura, the head of rates and markets at the MassMutual Life Insurance’s investment strategy department in Tokyo. “Should the U.S. Treasury yield continue to aim for 2.4 percent, there is a concern that the auction won’t be that strong.”

Mitsubishi UFJ Kokusai Asset Management, Sumitomo Mitsui Asset Management and Asset Management One say Treasury yields are increasingly attractive.  The U.S. 10-year yield climbed to 2.3 percent Monday.

“Japanese investors will all be headed to the U.S. once calm returns to the Treasury and currency markets,” said Jun Fukashiro, a senior fund manager in Tokyo at Sumitomo Mitsui.

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