Japan Bonds May Rise, Ending 3-Day Drop, on Gain in Treasuries

By Theresa Barraclough


Jan. 28 (Bloomberg) -- Japanese bonds may rise, halting a three-day decline, on speculation demand for the nation's exports will weaken as the U.S. economy enters a recession.

Benchmark 10-year securities are likely to follow gains in U.S. Treasuries as traders maintain bets that the Federal Reserve will cut interest rates by as much as a half-percentage point on Jan. 30. The U.S. is Japan's largest overseas market.

``Last week's JGB sell-off will be reversed following the gain in Treasuries,'' said Akihiko Inoue, an analyst at Mizuho Investors Securities Co. in Tokyo. ``Demand may be unstable as investors feel cautious about the high prices.''

Ten-year bond futures for March delivery traded at 137.58 in London from 137.36 at the 3 p.m. close in Tokyo on Jan. 25. The contract will open for trading at 9 a.m. Tokyo time.

The benchmark 10-year bond hasn't traded yet today at Japan Bond Trading Co., the nation's largest interdealer debt broker. The yield on the 1.5 percent bond due in December 2017 rose 9.5 basis points to 1.48 percent on Jan. 25, the highest since Dec. 28. A basis point is 0.01 percentage point.

The Dow Jones Industrial Average lost 1.4 percent and the S&P 500 Index declined 1.6 percent on Jan. 25.

Japan's bonds often move in the same direction as U.S. Treasuries. Benchmark 10-year yields had a correlation of 0.94 with similar-dated U.S. debt in the past month, according to Bloomberg data. A value of 1 means the two moved in lockstep.

The 1.5 percent bond due in December 2017 closed at 100.20 to yield 1.476 percent on Jan. 25, according to the Bloomberg Yen Bond Fixing Price. The level is an average rate set at 6:30 p.m. in Tokyo by Daiwa Securities SMBC Co., Nikko Citigroup Ltd., Mizuho Securities Co. and Mitsubishi UFJ Securities Co.