Japan's 10-Year Bonds Gain as Stock Slide Spurs Demand for Debt

Japan's 10-year bonds rose, reversing a decline, on speculation a slide in local stocks increased demand for the relative safety of government debt.

Yields on benchmark 10-year notes fell to a 22-month low as Japanese shares declined after the Federal Reserve revealed it cut its 2008 growth forecast for the U.S., Japan's biggest export market. Bonds also rose after the Ministry of Finance sold 800 billion yen ($7.3 billion) of 20-year debt.

``The market is reacting to Asian equities, which are down relatively sharply,'' said Naomi Hasegawa, a senior bond strategist at Mitsubishi UFJ Securities Co. in Tokyo. ``The market will trade up for the rest of the day.''

The yield on the 1.7 percent bond due September 2017 fell 3.5 basis points to 1.43 percent as of 3:07 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. It was the biggest decrease since Nov. 2. The price gained 0.307 yen to 102.323 yen. The yield was earlier as low as 1.42 percent. A basis point is 0.01 percentage point.

Ten-year bond futures for December delivery gained 0.32 to 137.30 on the Tokyo Stock Exchange. The Nikkei 225 Stock Average declined 2.5 percent and the MSCI Asia Pacific Index of regional stocks lost 1.8 percent.

Japan's bonds typically move in the opposite direction to stocks. Benchmark 10-year yields had a correlation of 0.97 with the Nikkei 225 this month, according to data compiled by Bloomberg. A value of 1 would mean the two moved in lockstep.
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