Bloomberg News

Japan’s Bond Yields Near Two-Week High on Political Division

June 01, 2011

June 1 (Bloomberg) -- Japan’s 10-year government bond yields were half a basis point from a two-week high on concern political divisions will keep Prime Minister Naoto Kan from taking measures to ease the nation’s debt burden.

Kan is facing a no-confidence vote over his handling of a record earthquake and a continuing crisis at a tsunami-damaged nuclear plant. Bonds maintained losses after today’s auction of 10-year securities drew bids worth 2.70 times the amount on offer, compared with a so-called bid-to-cover ratio of 2.73 times at the previous auction in May.

The political situation “is a risk factor for bonds as the market has supported Kan’s initiative toward fiscal rehabilitation,” said Akitsugu Bandou, a senior economist in Tokyo at Okasan Securities Co., one of the 24 primary dealers obliged to bid at government debt sales. “The auction itself wasn’t bad, but its impact on the market has been muted.”

The yield on the 1.1 percent bond due March 2021 rose half a basis point to 1.155 percent as of 3:01 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.043 yen to 99.516 yen. The yield earlier reached 1.16 percent, the highest since May 18. A basis point is 0.01 percentage point.

Ten-year bond futures for June delivery declined 0.09 to 140.54 at the afternoon close at the Tokyo Stock Exchange.

At least fifty-three members of Kan’s Democratic Party of Japan will support a no-confidence measure in the Diet’s lower house, an Asahi newspaper poll today showed. While that leaves the main opposition Liberal Democratic Party and other groups at least 32 votes short of passage, the paper said it had contacted less than 60 percent of the DPJ’s legislators.

The lowest price at the auction was 100.20 yen, matching the median forecast by 12 traders in a Bloomberg News survey. That price was 0.04 yen below the average, compared with a difference of 0.03 yen at the previous sale in May. The so- called tail is the difference between the lowest and the average prices. The longer the tail, the less bids are clustered around the average price.

--With assistance from Sachiko Sakamaki and Takashi Hirokawa in Tokyo. Editors: Rocky Swift, Naoto Hosoda

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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


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