07
03/11
Japan Bond Gain as Oil Prices, Stock Losses Spur Safety Demand
By Yoshiaki Nohara
March 7 (Bloomberg) — Japan’s bonds gained, with yields falling from near a two-week high, as rising oil prices and escalating tensions in the Middle East weighed on the outlook for global growth.
Ten-year futures advanced for the first time in three days as a decline in stocks boosted demand for the relative safety of government debt. Oil prices climbed to a 29-month high in New York on concern violence will keep spreading in the Middle East and disrupt the crude supply.
“Rising oil is considered a downside risk for the economy in the U.S. and Japan, which is positive for bonds,” said Akio Kato, Tokyo-based team leader for Japanese debt at Kokusai Asset Management Co., which runs the $32.8 billion Global Sovereign Open fund. “Bonds are advancing following overseas moves.”
The yield on the 1.3 percent bond due March 2021 fell 2.5 basis points to 1.27 percent as of 3:49 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price rose 0.222 yen to 100.266 yen. The yield increased to 1.315 percent on March 4, the most since Feb. 18.
Ten-year futures for March delivery gained 0.36 to 139.71 at the afternoon close at the Tokyo Stock Exchange.
Crude for April delivery increased as much as $1.97 to $106.39 a barrel in New York, the highest intraday price since September 2008. The increase in oil prices boosted Treasuries for a second day.
Focus on Slowdown
“People are focusing on an economic slowdown due to surging oil, which caused Treasuries to be bought,” said Takafumi Yamawaki, chief rate strategist at JPMorgan Chase & Co. in Tokyo. “Investors find it easy to cover short positions in bond futures.” A short position is a bet an asset will fall.
The Nikkei 225 Stock Average dropped 1.8 percent today, snapping a two-day gain.
Japanese Foreign Minister Seiji Maehara resigned yesterday after accepting campaign contributions from a non-Japanese resident, in another blow to Prime Minister Naoto Kan. Chief Cabinet Secretary Yukio Edano will take on Maehara’s portfolio temporarily, Kan said today.
The resignation of Maehara “will have a limited impact on the market because Japan’s political confusion is nothing new,” Shinji Nomura, chief debt strategist at Nikko Cordial Securities Inc. in Tokyo, wrote today in a note to clients.
The Finance Ministry will sell 600 billion yen ($7.29 billion) of 30-year bonds tomorrow.
The previous auction of the securities on Jan. 13 drew bids for 5.77 times the amount on offer, down from a so-called bid- to-cover ratio of 2.95 at the December sale.
Japan’s bonds have handed investors a loss of 0.9 percent since Dec. 31, paring the gain in the fiscal year ending march 31 to 1.6 percent, according to an index compiled by Merrill Lynch & Co.
–With assistance from Yumi Ikeda in Tokyo. Editors: Nicholas Reynolds, Jonathan Annells