Japanese bonds posted the biggest weekly gain in five months as the nation’s most powerful earthquake threatened a nuclear disaster, drove the yen to a postwar high and boosted demand for safer assets. Yields on benchmark 10-year bonds touched a two-month low as the central bank said it will buy more government debt to lower borrowing costs. The yen’s appreciation prompted the Group of Seven nations to intervene in the foreign-exchange market to help weaken the currency. The yield spread between 40-year debt and 10-year bonds widened to the most in three years on speculation the government will increase debt issuance to finance rebuilding. “The impact of the earthquake itself is a negative for the economy, so it’s a catalyst for bond yields to fall,” said Masaru Hamasaki, who helps oversee about $17 billion in Tokyo as chief strategist at Toyota Asset Management Co. “The quake will be followed by reconstruction, which raises financial burden on the country.” The benchmark 10-year yield slid six basis points since March 11, the biggest weekly drop since the period ended Oct. 8, to 1.21 percent in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.3 percent security due March 2021 gained 0.536 yen to 100.802 yen. The yield dropped to 1.145 percent on March 15, the lowest since Jan. 5. Ten-year bond futures for June delivery climbed 0.54 to 139.74 at the Tokyo Stock Exchange. The Nikkei 225 (NKY) Stock Average lost 10 percent for the week. Nuclear Disaster The magnitude-9.0 earthquake on March 11 triggered a tsunami that swept as far as 20 kilometers (12.4 miles) inland along the northern coast, and left at least 6,539 people dead and 10,354 missing. The government and Tokyo Electric Power Co. are struggling to prevent a meltdown and spread of radiation at the Fukushima Dai-Ichi power station. The Liberal Democratic Party of Japan, the country’s main opposition party, plans to seek 5 trillion yen ($61 billion) in emergency spending to support people hit by the earthquake on and to rebuild the devastated region, Kyodo News reported. The agency cited LDP President Sadakazu Tanigaki, who spoke at a press conference on March 15. Bank of Japan Governor Masaaki Shirakawa and his board decided on March 14 to double to 10 trillion yen a fund that buys government bonds, corporate debt, exchange-traded funds and other assets. The BOJ also pumped a total of 38 trillion yen this week into the financial system in one-day operations. The yen fell 2.6 percent to 80.90 in New York yesterday after appreciating to 76.25 on March 17, surpassing the highest level since World War II reached in April 1995. A stronger yen makes Japanese exports more expensive overseas and reduces the value of overseas earnings at the nation’s companies when repatriated. Yield Outlook The G-7 members agreed to sell yen as their markets open, Japan’s Finance Minister Yoshihiko Noda told reporters in Tokyo yesterday. Their finance ministers and central bank chiefs of said in a joint statement after a conference call that they will “provide any needed cooperation.” The yield premium investors demand to hold 40-year bonds instead of 10-year securities widened to 1.16 percentage points on March 15, the most since April 2008. Richard Wright, an investment manager at RBW Capital Advisors LLC, forecast Japan’s yields will rise as stocks climb. “You’re going to see yields go from 1.2 percent up to 3 percent in the next 12 months,” he said in an interview with Bloomberg Television. To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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