Japan bonds suffer biggest one-day drop as investors shift views for interest rates
Japanese government bonds suffered their biggest one-day drop in nearly five years on Friday as investors shifted their view of the outlook for interest rates in Japan and the United States.
Japanese government bond futures 2JGBv1 ended down 1.49 points after being briefly suspended for the first time ever in a bid to calm hectic dealing in one of the worst sell-offs in the past decade.
“The moves in JGBs stem from a rapid change in the market’s views on the outlook for U.S. monetary policy,” said Naomi Hasegawa, senior fixed income strategist at Mitsubishi UFJ Securities.
“The market’s earlier consensus had been that the Federal Reserve would keep lowering interest rates towards around 1 percent, but now there are expectations the Fed may cut interest rates once more and then take a pause.”
Euro zone government bonds opened lower, with June Bund futures off 19 ticks at 113.36. Two-year yields <EU2YT=RR> rose 1.3 basis points to 3.931.
“We’re lower but really JGBs are playing catch up, inflation is a global phenomenon and is finally making itself felt in Japan,” said one European trader.
Asian stocks were lifted by the bond sell-off and support from a steady dollar, which held on to gains following signs on Thursday of resilience in the U.S. labour market.
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Japan’s Nikkei average .N225 rose 2.4 percent, while MSCI’s index of stocks across the rest of Asia .MIAPJ0000PUS rose 0.3 percent.
Among the gainers were Japan’s No.2 bank Mizuho Financial Group (8411.T: Quote, Profile, Research), which jumped 7.3 percent, and third-ranked Sumitomo Mitsui Financial Group (8316.T: Quote, Profile, Research), up 6.1 percent.
Financial bookmakers, or spread betters, in London expected Britain’s FTSE 100 .FTSE index to open 6-14 points higher, the German DAX .GDAXI up 10-20 points, and the French CAC 40 .FCHI up 1-13 points.
CHIPS ARE UP
Seoul added to the cheer as Samsung Electronics (005930.KS: Quote, Profile, Research), the world’s top maker of memory chips used in consumer electronics, rose 4.4 percent after posting a 37 percent rise in quarterly profit on strong sales and margins in flat screens and mobile phones that offset weaker chips. [ID:nSEO201057]
“Samsung’s numbers just came out astoundingly good. Its profits from handset and LCD divisions were very impressive,” said Suh Do-won, an analyst at Hanwha Securities.
“Until very recently people were looking for reasons to sell stocks, but now they’re really looking for reasons to buy — anything will do,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.
“The big thing we’re seeing right now is a growing sense that when the Fed meets next week, any rate cut they do is likely to be the last for a while.”
The rise in stocks was matched by a retreat in crude oil CLc1, which had hit a record close to $120 a barrel on Tuesday.
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Crude dropped as far as to $115.44 on Friday, before recovering to $115.94, down 12 cents on the day. But gold <XAU=>, which often tracks movements in oil, rose to $890 an ounce as bargain hunters snapped up bullion after it fell through $900.
Soaring energy prices lifted Japan’s core consumer prices, which exclude volatile fresh food prices but include oil products, by 1.2 percent in March from a year earlier, helping feed the argument that the Bank of Japan will find it difficult to cut interest rates.
“It’s hard to think the Bank of Japan’s stance on monetary policy will change just because of a rise in cost-push inflation,” said Mamoru Yamazaki, chief economist at RBS Securities.
“But it may stir talk among market players that it may become more difficult for the BOJ to lower interest rates … so I think it is negative for Japanese government bonds.” Editing by Alice Wu
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