Japan's 10-Year Bonds Gain on Signs Subprime Losses Spreading

Japan's bonds rose on signs losses stemming from U.S. subprime mortgage securities are spreading.

Ten-year yields approached their lowest in 21 months after Mizuho Financial Group Inc. cut its full-year profit forecast because of losses related to investments in U.S. home loans to riskier borrowers. Treasuries gained yesterday as concern about weak investor demand for debt used to fund company buyouts overshadowed a stronger-than-forecast retail sales report.

``The generally bond-positive environment is still intact and all the credit-crunch stories are still there, which is why 10-year yields have declined through 1.5 percent,'' said Naruki Nakamura, who helps manage the equivalent of $3.2 billion of bonds in Tokyo at Fischer Francis Trees & Watts.

The yield on the 1.7 percent bond due September 2017 fell 1.5 basis points to 1.5 percent as of 3:15 p.m. in Tokyo, according to Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.130 yen to 101.713 yen. A basis point is 0.01 percentage point.

Ten-year bond futures for December delivery gained 0.34 to 136.85 as of the afternoon close on the Tokyo Stock Exchange.

Aozora Bank Ltd., the Japanese lender bought and restored to health by U.S. buyout firm Cerberus Partners LP, said yesterday it expects a 23 percent decline in full-year profit after writing down the value of investments related to U.S. home loans. Shinsei Bank Ltd. said Nov. 13 first-half earnings plunged 40 percent as it added to provisions linked to U.S. home loans.
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