Japan Bonds Drop – Volatility Saps 20-Year Sale as Election Nears

Japan’s bonds fell while 20-year yields moved toward the biggest gain seen in almost a week, this following a debt auction that drew weaker demand that what primary dealers had forecast.

At today’s sale of 2034 notes, the lowest price was the 101.55 yen, which fell below the median forecast of 102.05 set by 14 primary dealers surveyed by Bloomberg News. Reaching a five-month low at 1.2 trillion yen or $10 billion offering was the bid-to-cover ratio.

After newspapers reported that Prime Minister Shinzo Abe said he was planning to delay a sales tax increase and that record stimulus on October 31 was expanded by the Bank of Japan, yield volatility surged last week.

Takeo Okuhara, senior fund manager at Daiwa SB Investments Ltd in Tokyo stated that the auction results were extremely weak and that volatility has increased, thereby damping investors’ risk interest.

The yield on the 20-year government bond climbed five basis points to 1.29%, being the most since November 12, this according to the Japan Bond Trading Co. In addition, the price of the 1.4% security coming due in September 2034 dropped .081 yen to 101.737.

For 30-year yields, they climbed five basis points to 1.47%, the most since November 5. Regarding benchmark 10-year yields, 2.5 basis points were added to 0.505%.

The 10-day historical volatility for 20 and 30-year bond yields reached their highest levels last week, dating back to August of last year, a time when the Bank of Japan started to record asset buying.

Japanese stocks gained while the yen traded close to a seven-year low against the US dollar today, following reports that Abe plans to announce the tax plan delay, possibly as early as today after the economy unexpectedly slipped into a recession yesterday. People close to the situation strongly believe that an early election will be called by Abe.

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David Waring

David Waring was the founder of LearnBonds.com and has been a major contributor to the extensive library of investing news and information available on the site. Until the launch of Learnbonds.com in late 2011 there was no single site on the internet catering exclusively to the individual bond investor. This was true even though more individuals own stocks than bonds. Learn Bonds was launched to fill that gap.

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