Japan’s Bonds Rise as Deepening Export Slump Boosts Debt Demand
By Yoshiaki Nohara
Aug. 26 (Bloomberg) — Japanese bonds rose, pushing 20-year yields to a five-week low, after a government report showing the decline in exports accelerated last month added to concern the economic recovery will falter.
Twenty- and 30-year bonds led gains before government reports in two days that economists said will show the jobless rate climbed for a sixth month and consumer prices fell at a record pace. Bonds also advanced after U.S. bank holding company Colonial BancGroup Inc. filed for bankruptcy, increasing demand for the safety of debt.
“Exports cast a shadow on optimism increasing shipments will sustain Japan’s economic recovery,” said Tetsuya Miura, chief market analyst in Tokyo at Mizuho Securities Co., a unit of Japan’s second-biggest bank. “Weak economic data such as falling prices encourage investors to keep buying bonds.”
The yield on the 2.1 percent bond due June 2029 fell 2.5 basis points to 2.07 percent as of 4:17 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield was the lowest since July 21. The price rose 0.351 yen to 100.421 yen. A basis point is 0.01 percentage point.
Thirty-year yields dropped two basis points to 2.245 percent, and 10-year yields declined 1.5 basis points 1.31 percent. Ten-year yields may fall to 1.27 percent by the end of September, Miura said.
Ten-year bond futures for September delivery were little changed at 138.92 at the afternoon close of the Tokyo Stock Exchange.
Shipments abroad tumbled 36.5 percent from a year earlier, steeper than June’s 35.7 percent drop, today’s report showed.
Consumer prices excluding fresh food may have fallen 2.2 percent last month from a year earlier after dropping 1.7 percent in June, according to a Bloomberg News survey before the Aug. 28 report. The jobless rate rose to 5.5 percent in July from 5.4 percent in June, a separate survey forecast.
“As jobs data deteriorate, consumers will keep cutting back on spending, leading to a further drop in prices,” said Naomi Hasegawa, a senior debt strategist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s largest lender by assets. “The Bank of Japan remains very conservative about the economic outlook and will keep its key rate at 0.1 percent for a while.”
The central bank cut its key overnight rate to 0.1 percent in December, and has since begun buying corporate debt from lenders and offering them unlimited loans to channel funds to companies. The policy board last month extended the credit measures by three months to Dec. 31.
Colonial, based in Montgomery, Alabama, sought Chapter 11 protection yesterday, listing assets of $45 million and debts of $380 million. Its banking unit became the biggest lender to be seized by regulators since the collapse of Washington Mutual Inc. last year.
The gain in bonds was tempered as Japanese stocks rose, encouraging investors to buy higher-yielding assets. The Nikkei 225 Stock Average climbed 1.4 percent.
“We are starting to see a stronger ‘liquidity-market’ element, whereby both share prices and bonds are underpinned by an abundance of surplus cash,” Chotaro Morita, head of fixed- income strategy research at Barclays Capital, wrote today in a note to clients.
The Nikkei 225 and 10-year yields had a correlation of 0.8 last week, according to data compiled by Bloomberg. A value of 1 would mean the two moved in lockstep.
The Finance Ministry will sell 2.4 trillion yen ($25.5 billion) in two-year notes tomorrow.
To contact the reporter on this story: Yoshiaki Nohara in Tokyo at email@example.com.
Last Updated: August 26, 2009 03:21 EDT