Japan : Japanese bonds completed a loss last week as signs showed that the global economy is recovering and a rally in stocks around the world damped demand for government debt.
Ten-year yields were near the highest level in a week as optimism that the European debt crisis is easing boosted local shares for a third day and pushed down the cost of protecting Japanese bonds from default. Bond losses were tempered Friday after a government report showed deflation deepened, enhancing the value of fixed payments from debt.
Evidence
"We continue to have hard evidence pointing to a sustained recovery" of the global economy, said Masahide Tanaka, a senior strategist in Tokyo at Mizuho Trust & Banking, a unit of Japan's second-largest banking group. "Current yield levels are apparently unsustainable."
The yield on the benchmark for 10-year bonds climbed 1.5 basis points last week to 1.25 per cent at Japan Bond Trading - the nation's largest interdealer debt broker. The price fell from 0.133 yen to 100.436 yen. The yield briefly climbed to 1.27 per cent Friday, the highest level since May 20.
Ten-year bond futures for June delivery rose 0.05 last week to 140.45 on the Tokyo Stock Exchange.
The Nikkei 225 Stock Average advanced 1.3 per cent Friday and the Markit iTraxx Japan index of credit-default swaps dropped 11 basis points to 129 basis points. The swap indexes are benchmarks for protecting bonds against default. An increase suggests deteriorating perceptions of credit quality and a drop shows improvement. In April, Japanese factory output gained 2.5 per cent, following a 1.2 per cent increase in March, according to the median estimate of economists surveyed by Bloomberg News before the data is announced on May 31. Demand for bonds also waned after China confirmed its commitment to investing in Europe.
