Japan's Bonds Gain as Stocks Slump, Demand Rises at Auction - BusinessWeek

October 04, 2011, 3:13 AM EDT By Mariko Ishikawa

Oct. 4 (Bloomberg) -- Japan’s bonds rose, driving down 30- year yields for the first time in seven days, as stocks fell, boosting demand for the relative safety of government debt.

Benchmark 10-year yields dropped from near a one-month high on concern Greece will default and Europe’s debt crisis will worsen. Bonds also advanced after today’s auction of 10-year debt drew the highest demand in three months and as Goldman Sachs Group Inc. cut its forecasts for Japan’s economic growth and yields for the securities.

“The bond market is reflecting risk aversion,” said Toru Suehiro, a market analyst in Tokyo at Mizuho Securities Co., one of the 25 primary dealers obliged to bid at government debt sales. “Because there isn’t a fundamental resolution to the European problem, we may see a cycle of optimism and pessimism continue which will disappoint investors. I think pessimism will prevail in the end.”

Thirty-year yields fell 1.5 basis points to 1.905 percent at 3:26 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 2 percent securities maturing in September 2041 rose 0.29 yen to 101.811 yen. Benchmark 10-year rates fell 2.5 basis points to 0.99 percent after touching 1.025 percent on Sept. 30, a four-week high.

Ten-year bond futures for December delivery advanced 0.27 to 142.54 at the 3 p.m. close of the Tokyo Stock Exchange. The Nikkei 225 Stock Average sank 1.1 percent.

Today’s sale of 10-year bonds drew bids valued at 6.3 trillion yen ($82.2 billion), or 3.15 times the amount sold. That was the highest ratio since July even after the coupon was set at 1 percent, the least since November 2010.

‘Slightly Stronger’

“The results for the 10-year auction were slightly stronger than expected,” said Reiko Tokukatsu, a senior fixed- income strategist at Barclays Capital Japan Ltd. “Bonds tend to find more buyers on dips because sentiment in financial markets has deteriorated” amid the worsening situation in Greece.

Goldman Sachs halved its forecast for Japan’s growth to 0.1 percent during the fiscal year ending March 2012 owing to a slowdown in the global economy. The company also cut its forecast for Japan’s 10-year yields to 1.1 percent in three months from 1.25 percent.

European finance ministers meeting in Luxembourg pushed back a decision on the release of Greece’s next loan installment until after Oct. 13. It was the second postponement of a decision originally slated for this meeting.

--With reporting by Masaki Kondo in Tokyo. Editors: Nate Hosoda, Rocky Swift

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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