Nowhere are yields as low as in Japan’s debt market and nowhere are returns higher as Prime Minister Yukio Hatoyama’s government fails to stop deflation.
The combination of the fastest drop in consumer prices in five decades and the yen trading at about a 14-year high has turned Japanese government bonds into the past month’s best performers among the 26 markets tracked by Bloomberg and the European Federation of Financial Analysts Societies. The debt returned 3.6 per cent in dollar terms and 5.6 per cent in euros. So-called JGBs rose 0.83 per cent this year in local currency.
Deflation, or a persistent decline in consumer prices, is sparking demand even as Hatoyama boosts borrowing to a record ¥53.5 trillion ($607 billion) in the year ending March 2010 to pay for fiscal stimulus. Mitsubishi UFJ Financial Group Inc. and Yasuda Asset Management Co are buying 10-year notes yielding 1.275 per cent, lower than in the US, UK and Germany, for so-called real yields of 3.78 per cent after accounting for deflation. The comparable rate in the US is 3.70 per cent.
“The deflation trend could continue until 2011,” said Hideo Shimomura, who helps oversee about $56.5 billion as chief fund investor in Tokyo at Mitsubishi UFJ Asset Management Co, part of the world’s biggest bank by assets.