Bloomberg News

Japan’s 10-Year Bonds Post Weekly Drop Amid Political Turmoil

June 03, 2011

June 3 (Bloomberg) -- Japan’s 10-year bonds posted the biggest weekly drop in two months on prospects political turmoil may delay reconstruction from a March earthquake and add to credit concerns.

Bond futures retreated from near a six-month high as Prime Minister Naoto Kan’s pledge to step down set off a contest to select Japan’s next leader. Kan survived a no-confidence vote yesterday after offering to resign once the nation’s worst postwar crisis is contained.

“Ten-year bonds with yields below 1.2 percent are overvalued,” said Ayako Sera, a strategist at Sumitomo Trust & Banking Co. in Tokyo, which manages the equivalent of $306 billion. “Political turmoil is negative for Japanese bonds.”

The benchmark 10-year yield was unchanged at 1.135 percent as of 3:01 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.2 percent security due June 2021 was 100.583 yen.

Ten-year yields gained 1.5 basis points for the past five days, the biggest weekly advance since the period ended April 8. A basis point is 0.01 percentage point.

Ten-year bond futures for June delivery were little changed at 141.06 at the 3 p.m. close of the Tokyo Stock Exchange. The contracts touched 141.18 yesterday, the highest since Dec. 7.

Lawmakers from the ruling Democratic Party of Japan divided over what that the timeframe may be for the prime minister’s resignation, with Kan’s predecessor saying it could be by month- end and the prime minister suggesting it might not be until early next year.

--Editors: Jonathan Annells, Naoto Hosoda

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; 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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