July 13, 2010, 2:49 AM EDT
July 13 (Bloomberg) -- Japan’s 10-year bonds fell amid speculation U.S. reports will show the world’s largest economy is improving, reducing demand for the relative safety of government debt.
Bonds dropped for the third time in four days before data economists said will show U.S. retail sales fell at a slower pace and the job market improved. Pacific Investment Management Co. sounded concern about continued demand for Japanese debt, while central bank data showed the nation’s public pension fund was a net seller last year. The Ministry of Finance sold 2.2 trillion yen ($24.8 billion) in five-year bonds today.
“We may see positive reports out of the U.S. this week, which could reduce excessive concerns about a double dip in the economy,” said Takashi Nishimura, an analyst in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co., a unit of Japan’s largest lender by assets.
The yield on the benchmark 10-year bond gained one basis point to 1.125 percent as of 3:28 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield fell as much as 3.5 basis points yesterday, the most since June 29.
The 1.1 percent security due June 2020 lost 0.089 yen to 99.776 yen. Ten-year bond futures for September delivery retreated 0.05 to close at 141.40 at the Tokyo Stock Exchange.
A Commerce Department report will show on July 14 that retail sales in the U.S. fell 0.3 percent in June after a 1.2 percent slide the previous month, according to economists’ projections compiled by Bloomberg. The number of Americans applying for jobless benefits likely dropped in the week ended July 10, a separate Bloomberg survey showed.
Pension Fund Sales
The lowest price at the sale of the 0.4 percent notes due in five years was 0.01 yen below the average, half that of the previous sale in June. The so-called tail is the difference between the lowest and the average price. The longer the tail, the less bids are clustered around the average price.
“The auction result is resilient, reflecting excess cash that is flooding domestic financial companies,” said Makoto Noji, a senior market analyst at Mizuho Securities Co. in Tokyo.
Japan’s public pension fund sold more government bonds than it bought for the first time in nine years, underscoring concern that an aging population will make domestic investors less able to finance state borrowings.
The fund sold a net 443.2 billion yen of Japanese government bonds in the year ended March 31, according to Bank of Japan data released last month. It held 79.5 trillion yen of the securities at the fiscal year end, 11.6 percent of the outstanding amount.
‘Some Problems’
“Once Japan is dependent upon non-Japanese investors to support the JGB market, we do foresee some problems,” said David Fisher, head of global product management for Pimco, manager of the world’s biggest bond fund.
“This is one of the main reasons why in the global bond portfolio we have very, very limited exposure to JGBs despite the fact that yields are not so terribly unattractive on a hedged basis,” Fisher said on a conference call from Tokyo today.
--With assistance from Yumi Ikeda in Tokyo. Editors: Rocky Swift, Nicholas Reynolds
To contact the reporters on this story: Masaki Kondo in Tokyo 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
From Bloomberg Businessweek published on July 13, 2010, 2:49 AM EDT