Treasuries Pace Asia Bond Drop as French Vote Curbs Haven Demand

(Bloomberg) -- Treasuries led a decline in Asian government bonds Monday as demand for haven assets eased on speculation pro-Europe centrist Emmanuel Macron will become France’s next president.

Benchmark 10-year U.S. yields headed for their biggest one-day jump since March 1 as Macron edged out anti-euro nationalist Marine Le Pen in the first round of France’s presidential election. Treasuries rallied over the past month or so as the uncertainty surrounding the French vote and geopolitical tensions in North Korea and Syria spurred a flight to safety.

The election result has “calmed market fears,” said Damien McColough, head of fixed-income research at Westpac Banking Corp. in Sydney. “We are undergoing a risk-on impulse in both currency and bond markets.”

The yield on securities due in a decade climbed six basis points to 2.31 percent, according to Bloomberg Bond Trader data. The two-year yield rose seven basis points to 1.25 percent, while the 30-year yield increased five basis points to 2.96 percent.

The French vote has come under greater investor scrutiny for further signs of anti-globalization in the wake of last year’s Brexit referendum and Donald Trump’s victory in U.S. elections. Macron, a committed globalist, is the favorite to win the second round on May 7, opinion polls show.

In Japan, the five-year yield rose 1 1/2 basis points to minus 0.160 percent after the central bank reduced purchases of debt due in three to five years by 30 billion yen ($273 million) to 320 billion yen. The Bank of Japan left the buying amounts for other maturities unchanged. The local currency weakened.

The French election result and the subsequent risk-on rally reduced chances of a further advance in the yen, giving the central bank the opportunity to cut bond purchases, said Naoya Oshikubo, a rates strategist at Barclays Plc in Tokyo.

Asia Rates at a Glance

• The table shows 10-year government bond yields and yield changes on the day. Z-scores measure deviation from average in past three months

“The BOJ has seized this opportunity because of the tight supply-demand balance in the five-year zone and a reduced tail-risk surrounding the French presidential vote,” Oshikubo said.

The Japanese authority’s bids to buy one-to-three-year securities attracted offers worth 5.39 times the amount it sought to purchase, the highest since August 2014, and up from 4.42 at the last operation on April 19. A similar ratio for 10-year inflation-linked notes climbed to 6.73 from 4.25 in early April.

--With assistance from Shigeki Nozawa

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net, Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net.

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Shikhar Balwani