SF: Japanese Bond Futures Advance on Stronger Yen, Economy Concerns
Aug. 24 (Bloomberg) -- Japanese 10-year bond futures advanced on concern the stronger yen and a slowing U.S. economy will batter exporters' earnings, supporting demand for the safety of government debt.
Benchmark 10-year yields were near a seven-year low before a private report that economists say will show sales of existing homes tumbled in the U.S. last month. The Japanese currency traded near an eight-week high versus the euro, driving down the Nikkei 225 Stock Average below 9,000 for the first time in 15 months. The Ministry of Finance will sell 1.1 trillion yen ($12.9 billion) in 20-year bonds today.
"U.S. existing home sales will do nothing to improve sentiment about the economy," Christian Carrillo, a Tokyo-based senior fixed-income strategist at Societe Generale SA, wrote in an e-mail today. "Given that the 20-year sector looks to be in the middle of correcting significant long-term cheapness relative to 5, 10 and 30-year JGBs, we suspect that demand will remain robust," he wrote of today's auction.
Ten-year bond futures for September delivery advanced 0.10 to 142.93 as of 9:23 a.m. at the Tokyo Stock Exchange.
The yield on the benchmark 10-year bond fell one basis point to 0.925 percent at Japan Bond Trading Co., the nation's largest interdealer debt broker. The 1.1 percent security due June 2020 added 0.091 yen to 101.574 yen. The 10-year yield dropped to 0.9 percent on Aug. 18, the lowest since August 2003.
U.S. Economy
Sales of previously owned homes in the U.S. fell 13.4 percent in July, the biggest monthly drop this year, according to the median estimate of economists before the report today. U.S. gross domestic product grew 1.4 percent in the second quarter, less than the 2.4 percent expansion reported last month, another survey showed before the revised number on Aug. 27.
The U.S. was Japan's second-biggest export market by the value of products shipped during the first half of 2010, according to Japan's Ministry of Finance.
The yen rose as much as 0.4 percent to 107.40 per euro today, a level not seen since June 29. A stronger local currency reduces the value of overseas sales at Japanese companies.
The Nikkei 225 lost 1.4 percent to 8,993.12 today and fell below 9,000 for the first time since May 2009.
The 20-year bond sale on July 22 drew bids valued at 4.47 times the amount on offer, compared with a ratio of 4.6 in June. Primary dealers, which are required to bid at government debt sales, often reduce holdings of bonds in case prices decline before they can pass on the new securities to investors.
