Bloomberg News

Japan 10-Year Yield Falls Below 1% as Debt Crisis Boosts Demand

November 02, 2011

Nov. 2 (Bloomberg) -- Japan’s bonds rose, sending benchmark 10-year yields below 1 percent for the first time in a week, as renewed concern Europe’s debt crisis is worsening boosted demand for the relative safety of government securities.

Bonds advanced for a second day after Greek Prime Minister George Papandreou pledged to put the European Union’s financing package to a referendum, risking a disorderly default if it’s rejected by voters. Demand was also bolstered as Asian stocks extended a global slump following a report yesterday that showed U.S. manufacturing slowed.

“After hearing news that the Greek government is calling for a referendum, investors are forced to buy back bonds to cover short positions,” said Kazuya Ito, a fund manager at Daiwa SB Investments Ltd. in Tokyo, which oversees the equivalent of $57 billion. A short is a bet the price of an asset will decline. Investors cover shorts when the asset is purchased to exit the bet.

Ten-year yields slid two basis points to 0.995 percent as of 3:01 p.m. Tokyo time at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1 percent securities maturing in September 2021 climbed 0.179 yen to 100.044 yen. Last time the yield closed below 1 percent was Oct. 26.

Yields on 20-year debt dropped 3.5 basis points to 1.740 percent, and the 30-year yields fell three basis points to 1.940 percent. Ten-year bond futures for December delivery gained 0.27 to 142.58 at the 3 p.m. close of the Tokyo Stock Exchange.

The Nikkei 225 Stock Average lost 2.2 percent after the MSCI World Index sank 3.5 percent yesterday.

Greece’s Papandreou told his ministers in Athens that his plans for a referendum on the bailout terms would also ask voters to confirm if Greece should remain a member of the European Union and the euro area.

The U.S. Institute for Supply Management’s factory index dropped to 50.8 last month from 51.6 in September, the Tempe, Arizona-based group’s data showed yesterday. A reading of 52 was the median forecast in a Bloomberg News survey of economists. Fifty is the dividing line between growth and contraction.

--Editors: Rocky Swift, Jonathan Annells.

To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Yumi Ikeda in Tokyo at yikeda4@bloomberg.net

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


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