U.S. Bond Yields May Lose Appeal in Japan: Technical Analysis

By Wes Goodman

Sept. 2 (Bloomberg) -- The two-month gain in Treasuries has pushed yields down to levels investors in Asia may find unattractive, Mitsubishi UFJ Trust & Banking Corp. said, citing trading patterns.

Ten-year Treasuries yield 2.08 percentage points more than same-maturity securities in Japan, narrowing from this year’s high of 2.41 percentage points set last month. The spread has shrunk to the 500-day moving average and will be at the 100-day moving average should it narrow another four basis points, or 0.04 percentage point.

“U.S. Treasuries are less attractive,” said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking, part of Japan’s biggest bank. “Yields are too low.”

Benchmark 10-year notes yielded 3.36 percent in the U.S. and 1.28 percent in Japan as of yesterday. Those figures will rise to 4 percent and 1.6 percent by year-end, widening the spread to 2.4 percentage points, Yamamoto said.

The last time the rate gap was below the 100-day average was on April 15 when it was 1.33 percentage points. The spread then widened over a six-week period.

Japan is the second-largest foreign holder of U.S. government securities after China, according to the Treasury Department. The two Asian nations hold a combined $1.49 trillion of the $6.78 trillion in marketable U.S. debt.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.