Japanese Bonds Advance on Stock Drop, Global Deflation Concerns
Japan's 10-year government bonds advanced for a second day as the Nikkei 225 Stock Average slumped, extending a global stock rout that has erased more than $12 trillion of value in equities this quarter.
Ten-year yields fell to the lowest in six weeks after the Standard & Poor's 500 Index and Dow Jones Industrial Average slid to their lowest levels since March 2003. Inflation-linked bonds worldwide are yielding more than conventional debt, signaling the global economy faces increasing risks of deflation.
``Deflation concerns as well as the plunge in U.S. stocks are lowering Japan's yields,'' said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. The bias for yields to fall will continue, he said.
The yield on the 1.5 percent bond due September 2018 fell 3.5 basis points to 1.435 percent as of 4:25 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.302 yen to 100.559 yen. The yield touched 1.43 percent, the lowest since Oct. 9.
Five-year yields declined two basis points to 0.86 percent.
Ten-year bond futures for December delivery advanced 0.44 to 139.27 as of the afternoon close in Tokyo. A basis point is 0.01 percentage point.
The S&P 500 plunged 6.1 percent and the Dow dropped 5.1 percent yesterday. The Nikkei 225 lost 6.9 percent and the MSCI Asia Pacific Index slid 5 percent today.
Japan's bonds often move in the opposite direction to regional stocks. Benchmark 10-year yields had a correlation of 0.65 with the Nikkei and 0.72 with the MSCI index this month, according to Bloomberg data. A value of 1 means the two moved in lockstep.
20-Year Auction
Demand fell at the Ministry of Finance's sale of 900 billion yen ($9.4 billion) in 20-year bonds today. The auction drew bids worth 3.10 times the amount offered, compared with a so-called bid-to-cover ratio of 3.52 times at the previous sale in October. Last year's average ratio was 3.59 times.
The government increased the sale by 100 billion yen to compensate for reduced issuance of inflation-linked bonds, the MOF announced last month.
The lowest price at the auction was 0.12 yen below the average price, wider than a spread of 0.08 yen at last month's auction. The so-called tail is the difference between the lowest and the average price. The wider the tail, the less bids are clustered around the average price.
``A 2.1 percent coupon isn't great for investors,'' said Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co., one of the 24 primary dealers that are required to bid at auctions, in Tokyo. ``The tail was wide, but the auction went smoothly.''
Deflation Risk
U.S. consumer prices plunged 1 percent last month, more than forecast and the most since records began in 1947, a Labor Department report showed. A Japanese report on Nov. 13 showed Japan's wholesale inflation rate slowed for a second month.
``This is the starting point of seeing global deflation,'' said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets, in Tokyo.
The extra yield 10-year conventional Japanese bonds offer over similar-maturity inflation-linked debt, known as the breakeven rate, was at minus 156 basis points today, according to data compiled by Bloomberg.
The U.S. five-year breakeven rate was minus 68 basis points and the three-year U.K. breakeven spread was minus 71 basis points yesterday. A negative breakeven inflation rate reflects investor expectations for declining consumer prices over the life of the security.
Demand for bonds increased after repurchase rates fell, Mitsubishi UFJ's Nishimura said.
``Repo rates have been recovering this week and investors are becoming more confident about funding costs,'' he said. Ten- year yields may fall to as low as 1.3 percent by year-end, according to Nishimura.
The Tokyo repo rate fell almost a basis point to 0.406 percent, the lowest since at least October 2007, according to data compiled by Bloomberg News.
Ten-year yields fell to the lowest in six weeks after the Standard & Poor's 500 Index and Dow Jones Industrial Average slid to their lowest levels since March 2003. Inflation-linked bonds worldwide are yielding more than conventional debt, signaling the global economy faces increasing risks of deflation.
``Deflation concerns as well as the plunge in U.S. stocks are lowering Japan's yields,'' said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. The bias for yields to fall will continue, he said.
The yield on the 1.5 percent bond due September 2018 fell 3.5 basis points to 1.435 percent as of 4:25 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.302 yen to 100.559 yen. The yield touched 1.43 percent, the lowest since Oct. 9.
Five-year yields declined two basis points to 0.86 percent.
Ten-year bond futures for December delivery advanced 0.44 to 139.27 as of the afternoon close in Tokyo. A basis point is 0.01 percentage point.
The S&P 500 plunged 6.1 percent and the Dow dropped 5.1 percent yesterday. The Nikkei 225 lost 6.9 percent and the MSCI Asia Pacific Index slid 5 percent today.
Japan's bonds often move in the opposite direction to regional stocks. Benchmark 10-year yields had a correlation of 0.65 with the Nikkei and 0.72 with the MSCI index this month, according to Bloomberg data. A value of 1 means the two moved in lockstep.
20-Year Auction
Demand fell at the Ministry of Finance's sale of 900 billion yen ($9.4 billion) in 20-year bonds today. The auction drew bids worth 3.10 times the amount offered, compared with a so-called bid-to-cover ratio of 3.52 times at the previous sale in October. Last year's average ratio was 3.59 times.
The government increased the sale by 100 billion yen to compensate for reduced issuance of inflation-linked bonds, the MOF announced last month.
The lowest price at the auction was 0.12 yen below the average price, wider than a spread of 0.08 yen at last month's auction. The so-called tail is the difference between the lowest and the average price. The wider the tail, the less bids are clustered around the average price.
``A 2.1 percent coupon isn't great for investors,'' said Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co., one of the 24 primary dealers that are required to bid at auctions, in Tokyo. ``The tail was wide, but the auction went smoothly.''
Deflation Risk
U.S. consumer prices plunged 1 percent last month, more than forecast and the most since records began in 1947, a Labor Department report showed. A Japanese report on Nov. 13 showed Japan's wholesale inflation rate slowed for a second month.
``This is the starting point of seeing global deflation,'' said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets, in Tokyo.
The extra yield 10-year conventional Japanese bonds offer over similar-maturity inflation-linked debt, known as the breakeven rate, was at minus 156 basis points today, according to data compiled by Bloomberg.
The U.S. five-year breakeven rate was minus 68 basis points and the three-year U.K. breakeven spread was minus 71 basis points yesterday. A negative breakeven inflation rate reflects investor expectations for declining consumer prices over the life of the security.
Demand for bonds increased after repurchase rates fell, Mitsubishi UFJ's Nishimura said.
``Repo rates have been recovering this week and investors are becoming more confident about funding costs,'' he said. Ten- year yields may fall to as low as 1.3 percent by year-end, according to Nishimura.
The Tokyo repo rate fell almost a basis point to 0.406 percent, the lowest since at least October 2007, according to data compiled by Bloomberg News.
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