Ja­pan 10-year yield drops to record

The Pak Banker - - MARKETS/SPORTS -

In­vestors at home and abroad can't get enough 10-year Ja­panese govern­ment bonds, driv­ing the yield to an un­prece­dented mi­nus 0.135 per­cent.

Yields sank across the curve Fri­day af­ter the Bank of Ja­pan's op­er­a­tion to buy long-term debt met the low­est in­vestor par­tic­i­pa­tion on record, spurring what Bank of Amer­ica Mer­rill Lynch strate­gist Shuichi Oh­saki called "panic buy­ing." The yield on the bench­mark 2026 notes sank as much as 8 1/2 ba­sis points Fri­day to below the mi­nus 0.1 per­cent de­posit rate in­tro­duced by the cen­tral bank last month, while that on 20-year se­cu­ri­ties tum­bled more than 10 ba­sis points to an un­prece­dented 0.29 per­cent.

Height­ened in­vestor de­mand is ex­ac­er­bat­ing the al­ready dwin­dling sup­ply of bonds in the mar­ket. Ja­panese in­vestors are be­ing forced to keep money at home de­spite record-low yields be­cause of ris­ing hedg­ing costs that by one mea­sure stands at the high­est since 2009.

Mean­while, dol­lar-wield­ing global in­vestors are able to use fa­vor­able cross-cur­rency ba­sis­s­wap rates to turn Ja­pan's 10year yield into a fixed coupon equiv­a­lent of 2.6 per­cent.

In­vestors are buy­ing shor­t­er­dated debt "as there aren't enough 30-year, 20-year bonds avail­able," said Tadashi Mat­sukawa, the Tokyo-based head of fixed-in­come in­vest­ment at PineBridge In­vest­ments Ja­pan. "It goes to show how the BOJ's neg­a­tive in­ter­est-rate pol­icy is so strong." Yields on 10year govern­ment bonds fell 5 ba­sis points to mi­nus 0.10 per­cent as of 5:28 p.m. in Tokyo from Thurs­day, af­ter touch­ing the record low, ac­cord­ing to Ja­pan Bond Trad­ing Co. The price rose 0.512 yen to 102.018.

Ten-year bonds look rel­a­tively cheap com­pared with other tenors, at­tract­ing buy­ers, Bank of Amer­ica Mer­rill Lynch's Oh­saki said. Over­seas in­vestors bought a net 994 bil­lion yen ($8.9 bil­lion) in Ja­panese bonds dur­ing the week ended March 11, the most in a month, ac­cord­ing to Min­istry of Fi­nance data on Thurs­day.

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