BLBG: Japan's 10-Year Yield Is Near Three-Week Low on Industrial Production Data
Japan’s 10-year yields were less than three basis points from a three-week low after government data today on industrial production added to concern the nation’s economic recovery is losing momentum.
Factory output climbed 2.4 percent in January, compared with the median economist estimate of 4 percent in a Bloomberg survey. Demand for bonds also increased on speculation the yen’s gains will damp the earnings outlook for exporters.
“Industrial production was weaker than expected,” said Makoto Yamashita, chief rate strategist in Tokyo at Deutsche Securities Inc., the brokerage unit of Deutsche Bank AG. “As the yen is on an uptrend, yields are poised to drop.”
The benchmark 10-year yield gained half a basis point to 1.245 percent as of 1:11 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield has advanced 2.5 basis points this month. The 1.2 percent security maturing in December 2020 fell 0.044 yen to 99.606 yen.
Ten-year yields touched 1.22 percent on Feb. 24, the lowest since Feb. 2. A basis point is 0.01 percentage point.
Ten-year bond futures for March delivery were unchanged at 139.59 at the Tokyo Stock Exchange.
Ten-year yields may decline to 1.15 percent by the end of March, according to Deutsche Bank’s Yamashita. If his forecast proves accurate, investors who buy the securities today will make a 0.9 percent return, according to Bloomberg calculations.
Industrial Production
The Trade Ministry’s data today showed factory output slowed from the 3.3 percent growth in December.
Japan’s Finance Ministry will sell 2.2 trillion yen ($26.9 billion) of 10-year bonds tomorrow. The prior sale on Feb. 1 drew bids worth 2.69 times the amount on offer, compared with a so-called bid-to-cover ratio of 2.99 at the January auction.
Primary dealers, which are required to bid at government debt sales, often reduce holdings of bonds before an auction in case prices decline before they can pass on the new securities to investors.
“Investors are cautions about adding securities ahead of tomorrow’s 10-year auction,” Shinji Nomura, chief debt strategist at Nikko Cordial Securities Inc. in Tokyo, wrote in a note to clients.
The yen reached 81.62 per dollar, the strongest since Feb. 4, before trading at 81.68.
Bonds also found buyers on concern that the unrest throughout the Middle East and North Africa will intensify. U.S. officials will meet foreign counterparts in Geneva today to discuss the fate of Libya, including measures to pressure Muammar Qaddafi out of power.
“A flight to quality remains in the market because of uncertainty about the situation in the Middle East,” said Jun Fukashiro, chief fund manager at Toyota Asset in Tokyo. “Investors are cutting their holdings of stocks and buying debt.”
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.
