Japanese Bonds Rise as BOJ Says Credit Turmoil May Hurt Growth

Japanese government bonds rose, pushing 10-year yields to the lowest in 21 months, as central bank Deputy Governor Toshiro Muto said global financial market turmoil may hurt the nation's economy.

Benchmark notes were poised for a third weekly gain as Muto, a likely candidate to replace Governor Toshihiko Fukui, said the U.S. housing market slump may make it ``difficult'' to decide when to raise Japanese interest rates. Markets are ``unstable,'' Bank of Japan policy makers said in minutes published today of the Oct. 10-11 meeting.

``People think JGBs are very, very safe'' compared with lower-rated securities like corporate bonds, said Xinyi Lu, chief strategist at the international treasury division at Mizuho Corporate Bank Ltd. in Tokyo. ``Financial institutions have to get a return on their money and need to buy JGBs.''

The yield on the benchmark 10-year note fell as much as 3.5 basis points to 1.46 percent, according to Japan Bond Trading Co., the nation's largest interdealer debt broker. The yield was 1.47 percent as of 3:55 p.m. in Tokyo. The price of the 1.7 percent bond due September 2017 rose 0.218 yen to 101.975 yen. A basis point is 0.01 percentage point.

Ten-year bond futures for December delivery gained 0.19 to 137.04 as of the afternoon close on the Tokyo Stock Exchange.

The central bank on Nov. 13 kept its target for the overnight call rate, the main rate at which banks lend to each other, at 0.5 percent, the lowest among major economies.
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