Ja­pan 10-year bond yield goes neg­a­tive for first time

The Pak Banker - - MARKETS/SPORTS -

The yield on Ja­pan's 10-year govern­ment bond dropped below zero Tues­day, in a first for a G7 coun­try as pan­icked in­vestors flee a blood­bath on equity mar­kets. The note's ef­fec­tive re­turn slipped to -0.005 per­cent in the af­ter­noon, con­tin­u­ing a down­trend sparked by the Bank of Ja­pan's sur­prise move last month to slap a neg­a­tive in­ter­est rate on some com­mer­cial lenders' de­posits.

Be­fore the un­ex­pected de­ci­sion, Ja­pan's 10-year bond was pay­ing a yield of about 0.2 per­cent, sim­i­lar to the cur­rent pay­out on a com­pa­ra­ble Ger­man govern­ment bond.

By com­par­i­son, the United States pays about 1.7 per­cent on a 10-year bond while hard-hit Greece must pay a nearly 10 per­cent yield on its decade-long notes to at­tract wary in­vestors.

The de­cline in the yield -- ef­fec­tively the rate of re­turn for a bond if held to ma­tu­rity -- re­flects ris­ing de­mand for Ja­panese govern­ment debt, and in­vestors' wor­ries about putting more money into eq­ui­ties. "It's al­most like a panic," said Hideo Shi­mo­mura, the chief fund in­vestor in Tokyo at Mit­subishi UFJ Koku­sai As­set Man­age­ment. "The flight to qual­ity is ex­ag­ger­ated."Bonds, and es­pe­cially gov- ern­ment bonds, are gen­er­ally seen as su­per safe in­vest­ments where cap­i­tal is all-but guar­an­teed, even if they pay very lit­tle -- or no -- in­ter­est.

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