BLBG: Japan's 10- to 2-Year Yield Spread Widens as Report May Show Price Gains
The extra yield that investors demand to hold Japanese 10-year bonds over two-year notes rose to a two-month high before data tomorrow that may show consumer prices rose for the first time in almost two years.
The eight-year breakeven rate, a gauge of traders’ inflation expectations, held near the highest in more than two years. Demand for two-year debt fell at an auction of 2.6 trillion-yen ($31 billion) in the securities today.
“In the long run, there is the possibility that the market will start to look at inflation driven by higher commodity prices,” said Ayako Sera, who helps oversee about $310 billion in Tokyo as a strategist at Sumitomo Trust & Banking Co. “I expect 1.4 to 1.5 percent is the upper ceiling for 10-year yields for the next 12 months.”
The yield spread between 10-year and two-year debt was 97.5 basis points, the widest since Sept. 14. The yield on the benchmark 10-year bond added half a basis point to 1.13 percent as of 1:31 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price of the 1 percent security due September 2020 fell 0.043 yen to 98.852.
Ten-year bond futures for December delivery dipped 0.09 to 141.27 at the Tokyo Stock Exchange.
Japan’s consumer prices gained 0.2 percent in October from a year ago, according to the median estimate of economists surveyed by Bloomberg News. The last time prices increased was December 2008.
Export Growth
Traders expect prices to fall 0.5 percent annually for the next eight years, data compiled by Bloomberg show. The breakeven rate, or the difference between yields on inflation-linked bonds and conventional debt, reached minus 0.47 percent on Nov. 22, the least deflationary since September 2008.
The Reuters/Jefferies CRB Index of raw materials has climbed 6.7 percent this year after surging 23 percent last year.
Today’s sale of two-year notes drew bids valued at 3.19 times the amount on offer, compared with a so-called bid-to- cover ratio of 5.54 last month.
“The auction result confirmed there was demand,” said Takafumi Yamawaki, Tokyo-based chief rates strategist at JPMorgan Chase & Co. “The securities are likely to be absorbed without a problem.”
Demand for Japanese government debt was supported after a report showed exports grew less than economists forecast. Shipments gained 7.8 percent in October from a year ago, the Ministry of Finance said. Exports were estimated to rise 10.7 percent, a Bloomberg survey showed.
Ten-year Treasury yields jumped 14 basis points to 2.91 percent in New York yesterday after data showed U.S. jobless claims declined in the week ended Nov. 20 by more than economists had estimated. U.S. debt markets are closed today for the Thanksgiving holiday.
To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
