Japan Bonds Rebound as Benchmark Yield’s Rise to 0% Spurs Demand
Japan’s 10-Year Yield Climbs to Zero for First Time Since March
(Bloomberg) -- Japan’s bonds rebounded as an advance in the benchmark yield to zero for the first time in nine months lured investors back.
The 10-year yield dropped to minus 0.025% after climbing to 0% earlier on Tuesday. Japanese bond futures also bounced back from a one-year low.
“There is extremely strong demand from investors when the 10-year yield touches zero,” said Takenobu Nakashima, senior rates strategist at Nomura Securities Co. in Tokyo. “Given that the return from hedged foreign bonds for Japanese buyers is pretty much negative, they’re content with JGB yields at zero.”
Tuesday’s moves signal that the zero percent level is a potential line in the sand for Japanese investors given that many of their preferred overseas bond markets, particularly in Europe, continue to offer negative yields. Benchmark JGBs rebounded even as an auction of five-year bonds witnessed poor demand, with the tail being the widest since February 2016.
Japan’s 10-year yields have climbed from minus 0.295% in September after the Bank of Japan slashed debt purchases and refrained from adding any more easing measures. The advance has also come as optimism that the U.S. and China may reach a partial trade deal sapped demand for haven assets.
READ: Back-to-Zero Yields Boost BOJ Case That Easing Is Sustainable
While the BOJ stands pat on monetary policy, Japan’s government is stepping up its fiscal support, seeking to revive the economy grappling with an export slump, natural disasters and the fallout from a recent sales tax increase.
JGB yields climbed last week as Prime Minister Shinzo Abe announced a stimulus package worth around 26 trillion yen ($239 billion) spread over the coming years.
Some market participants had predicted that the benchmark yield’s move out of negative territory would attract local buyers and likely help to put a halt to the more than two-month sell-off in futures.
“Domestic buying forces will likely put a cap even as the 10-year yield may inch several points higher above zero,” said Shuichi Ohsaki, chief rates strategist at Bank of America Merrill Lynch in Tokyo.
To contact the reporter on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net
To contact the editors responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net, Shikhar Balwani
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