Japan Government Bonds Complete Weekly Fall on Surge in Sales

By Theresa Barraclough and Yasuhiko Seki

Jan. 10 (Bloomberg) -- Japanese 10-year bonds had the first weekly decline in a month as the government stepped up debt sales to help fund a plan to revive Japan’s economy.

Yields on the securities reached a three-week high as supply concerns hurt demand at an auction of the debt this week. The Ministry of Finance said Dec. 20 it will sell 113.3 trillion yen ($1.24 trillion) of bonds in the year starting April 1, up from a revised 106.3 trillion yen this fiscal year.

“There is a lot of concern surrounding the supply and demand balance given that issuance will increase,” said Tomohiko Katsu, deputy general manager of the capital market division at Shinsei Bank Ltd. in Tokyo. “In the near-term yields will be under rising pressure as investors adjust to the rising supply.”

The yield on the benchmark 10-year bond due December 2018 increased 12.5 basis points this week to 1.29 percent in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield on Jan. 8 reached 1.325 percent, the highest since Dec. 17. A basis point is 0.01 percentage point.

Five-year yields rose 5.5 basis points this week to 0.735 percent. Ten-year bond futures for March delivery lost 1.20 this week to 138.92 at the Tokyo Stock Exchange.

The Jan. 8 sale of 1.9 trillion yen in 10-year securities drew bids worth 2.33 times the amount offered, compared with a so-called bid-to-cover ratio of 2.9 times at the prior auction in December.

Prime Minister Taro Aso announced a stimulus package of 10 trillion yen on Dec. 12, doubling a 5 trillion yen plan he announced two months earlier.

Deepening Recession

The decline in bonds this week was limited on speculation three-week high yields attracted investors after President-elect Barack Obama warned the U.S. economy risks sinking deeper into a crisis without more government spending.

The debt ended a four-day slide yesterday as Obama’s comments added to concerns that weakening U.S. demand for Japanese goods will prolong the Asian nation’s first recession since 2001. A government report next week is estimated by economists to show Japan’s machinery orders declined for a second month in November.

“Given the state of the global economy and prospects of monetary policies, there are no reasons to believe that the slump in bonds will be sustained,” said Kazuto Uchida, chief economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. “The 10-year government bond yield may fall toward 1 percent in the first half of this year.”

Japan’s factory orders, an indicator of capital spending in the next three to six months, declined 8 percent from October, when they slid 4.4 percent, according to the median estimate of economists surveyed by Bloomberg News. The report is due Jan. 15.

Obama highlighted the need for more government spending and a cut in tax rates to overcome the recession as he urged Congress to act quickly on a stimulus package that may total $775 billion.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net.