BLBG: Japanese Bonds Gain for Third Day as Stock Losses Boost Demand
By Theresa Barraclough
Oct. 23 (Bloomberg) -- Japan's government bonds rose for a third day, the longest stretch in more than two months, as a slump in global stocks increased demand for the relative safety of debt.
Ten-year yields fell to the lowest level in almost two weeks as the Nikkei 225 Stock Average tumbled to the least since May 2003. Japan's exports rose less than economists estimated last month as overseas demand weakened due to the deepening global financial crisis and the looming risk of a recession, a Ministry of Finance report showed today.
``The market is globally moving towards another flight to quality,'' said Hitomi Kimura, a bond strategist in Tokyo at JPMorgan Securities Japan Co., one of the 24 primary dealers required to bid at government debt sales. ``Equity has come down so much overseas and bond markets have generally rallied.''
The yield on the 1.5 percent bond due September 2018 fell 6 basis points to 1.465 percent as of 1:09 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.518 yen to 100.302 yen. A basis point is 0.01 percentage point.
Five-year yields dropped 7 basis points to 1.015 percent. Ten-year bond futures for December delivery rose 1.02 to 137.63 on the Tokyo Stock Exchange.
U.S. 10-year yields fell 14.5 basis points to 3.59 percent yesterday, reducing the yield advantage over Japanese debt to 2.05 percentage points, the narrowest in more than a month, according to data compiled by Bloomberg.
G-20 Meeting
The Dow Jones Industrial Average tumbled 5.7 percent yesterday and the Standard & Poor's 500 Index dropped 6.1 percent to the lowest level since April 2003. The Nikkei 225 slumped 6.6 percent today.
Japan's bonds typically move in the opposite direction to stocks. Benchmark 10-year yields had a correlation of 0.98 with the Nikkei 225 this week, Bloomberg data show. A value of 1 would mean the two moved in lockstep.
Exports climbed 1.5 percent from a year earlier, after rising 0.3 percent in August, the finance ministry said in Tokyo. Economists surveyed by Bloomberg News estimated shipments would increase 5.1 percent.
World leaders, facing financial markets in turmoil and the possibility of a global recession, will discuss ways to fix the crisis at a summit meeting in Washington next month.
U.S. President George W. Bush, responding to calls from French President Nicolas Sarkozy and U.K. Prime Minister Gordon Brown, invited leaders from the so-called Group of 20 industrialized and developing nations to attend the summit almost two weeks after the U.S. presidential election.
Money Market
The rate that banks charge each other for yen loans declined for a fifth day yesterday, signaling the credit crunch may be easing.
``Libor is continuously falling as the focus shifts to recession from financial turmoil,'' said Akihiko Inoue, an analyst at Mizuho Investors Securities Co. in Tokyo. ``Bonds will test higher prices.''
The London interbank offered rate, or Libor, that banks charge each other for three-month yen loans, fell 1 basis point to 1.025 percent yesterday, the lowest in three weeks, according to the British Bankers' Association.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
