Bloomberg News

Japan Sovereign Bond Risk Declines as Europe Concern Eases

October 11, 2011

(Adds analyst’s comment in third paragraph.)

Oct. 11 (Bloomberg) -- Japan’s bond risk dropped, heading for the biggest four-day decline since 2004, as European leaders pledge to produce a plan to stem the region’s debt crisis.

Credit-default swaps to insure Japan’s government bonds against non payment dropped 17 basis points to 109 basis points as of 3:18 p.m. in Tokyo, according to Deutsche Bank AG prices. The swap rate has fallen 31 basis points since climbing to a record 154.8 basis points on Oct. 4 and is set to complete its biggest four-day decline since December 2004, according to data provider CMA prices in New York.

“Those who speculated that Japan’s sovereign CDS rate would go even higher would be cutting losses now,” as concerns about Europe have eased, said Taketoshi Tsuchiya, Tokyo-based director of credit trading at Barclays Capital Japan Ltd. “The widening was unusual. Japan’s fundamentals are unchanged.”

Germany and France on Oct. 9 set an end-of-month deadline for a breakthrough in handling Europe’s sovereign debt crisis. German Chancellor Angela Merkel and French President Nicolas Sarkozy put recapitalization of the region’s banks at the top of the priority list in a joint declaration in Berlin. Sarkozy said they would deliver a plan by the Nov. 3 Group of 20 meeting.

Credit-default swaps, which pay the buyer face value if a borrower fails to meet its obligations, fall as perceptions of creditworthiness improve and rise as they deteriorate. A basis point is equivalent to $1,000 annually on a contract protecting $10 million of bonds and loans.

Japan’s public debt is projected to reach 219 percent of gross domestic product next year, even before accounting for borrowing to fund reconstruction after the March earthquake, according to the Organization for Economic Cooperation and Development.

--With assistance from Emi Urabe in Tokyo. Editor: Nate Hosoda, Jonathan Annells

To contact the reporters on this story: Yusuke Miyazawa in Tokyo at; Kristine Aquino in Singapore at

To contact the editor responsible for this story: Shelley Smith at

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