Global Bond Rout Fuels Demand For Japan's Steady Sovereign Debt

Japan’s bond auction drew the highest bid-to-cover ratio in seven months, underscoring investors’ appetite for one of the world’s most-controlled debt market amid a global rout.

With U.S. Treasuries under selling pressure and equities faltering, Japanese investors may be left with few options, said Eiichiro Miura, general manager of the fixed-income department at Nissay Asset Management Corp. in Tokyo.

While the 10-year Treasury yield topped 2.75 percent for the first time since April 2014 after the Federal Reserve paved the way for a hike in March, the Japanese benchmark bond is being held below 0.1 percent through the Bank of Japan’s yield-curve control policy. The BOJ boosted debt purchases on Tuesday, which traders have interpreted as its commitment to hold down rates.

"Domestic investors may be facing difficulties allocating their funds as stocks look to be struggling with rising bond yields," Miura said. "They’ll have little choice, and could end up putting their money in JGBs."

The nation’s 10-year bond auction drew a bid-to-cover ratio of 4.58 times, up from 3.74 times in January. The yield rose 1.5 basis points to 0.095 percent Thursday. Meanwhile, the benchmark Nikkei 225 Index has dropped around 2.7 percent since hitting a 26-year high in January.

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