âThe U.S. economy has faced a double whammy: the recession and credit contraction,â said Akira Takei, head of non-yen denominated bonds at Mizuho Asset in Tokyo, a unit of Japanâs second-largest bank. âThe U.S. will face a triple whammy with deflation. Thatâs good for the Treasury market.â
Japan Tops China Buying Treasuries as Lost Decade Survivors Buy
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By Wes Goodman and Cordell Eddings
http://www.bloomberg.com/apps/news?pid=20601087&sid=am7sso5EFo8c&pos=4
Nov. 9 (Bloomberg) -- Japanese investors who lived through a decade of deflation and recessions say U.S. Treasuries are a bargain even with yields at about the lowest levels since at least the 1960s.
Japan bought a net $105 billion of U.S. government debt through August, exceeding China as the biggest foreign buyer and boosting its holdings to $731 billion, or more than 10 percent of the total market, Treasury Department data show. The 17 percent increase is the most since a 25 percent surge in 2004.
Mizuho Asset Management Co. and Mitsubishi UFJ Asset Management Co. are among the investors buying U.S. bonds because they see similarities between Americaâs response to the recession and their governmentâs efforts during the so-called lost decade of the 1990s. An index of Japanese debt securities compiled by Bank of America Corp.âs Merrill Lynch unit returned 90 percent in the 1990s, while the Nikkei 225 Stock Average fell as much as 67 percent between January 1990 and October 1998.
âThe U.S. economy has faced a double whammy: the recession and credit contraction,â said Akira Takei, head of non-yen denominated bonds at Mizuho Asset in Tokyo, a unit of Japanâs second-largest bank. âThe U.S. will face a triple whammy with deflation. Thatâs good for the Treasury market.â
The 3.625 percent benchmark U.S. 10-year note due in August 2019 closed last week at 101 1/32 to yield 3.5 percent. The yield has averaged 3.19 percent in 2009, the lowest since the Federal Reserve began providing daily data on the securities in 1962 and down from 3.64 percent for all of 2008.
Takaeiâs Forecast...
Takei, who helps oversee the equivalent of $21 billion, bought Treasuries in July and predicts 10-year yields will decline to 2.75 percent by year-end. An investor who purchased $10 million of the notes would earn about $715,000 if yields dropped to Takeiâs forecast, according to data compiled by Bloomberg.
Government securities have lost 2.8 percent since December, when 10-year yields fell to 2.04 percent, according to the Merrill Lynch U.S. Treasury Master Index data. Treasuries are on a pace to post their first annual losses since 1999 as the recovery in the global economy following the worst financial crisis since the Great Depression reduces the appeal of the debt as a haven.
Similar to Japanâs response to its real estate collapse in the 1990s, the U.S. is flooding the economy with cash only to see financial institutions sock the money away in bonds instead of making loans.
Inflation Protection
The Fed and the U.S. government have spent, lent or guaranteed $11.6 trillion to spur the worldâs biggest economy from recession and curb a decline in asset prices. The Standard & Poorâs 500 index has gained 58 percent to 1,069.30 from its low this year of 676.52 on March 9, though itâs below the peak of 1,576.09 reached in October 2007.
âJapanese investors have been skewed to expecting deflation because of their own experience, but the more pressing concern over the intermediate term is inflation,â said Michael Pond, an interest-rate strategist in New York at Barclays Plc, one of 18 primary dealers that trade with the Fed.
Pond favors Treasury Inflation Protection Securities, or TIPS, and said Asian investors, including the Japanese, have been buying the bonds on concern the dollar will continue to decline and inflation will accelerate. Barclays expects consumer prices to rise 1.9 percent in 2010, after a decline of 0.4 percent this year, data compiled by Bloomberg show.
During the 1990s, Japanâs economy grew at an average rate of about 1 percent a year as asset prices tumbled. It hasnât fared much better this decade, with gross domestic product expanding 0.2 percent on average and consumer prices falling 0.2 percent.
Consumer Prices
The threat of deflation, a general drop in prices that enhances the value of a bondâs fixed payments, makes Treasuries attractive to Japanese investors even with bond yields rising from last yearâs lows. U.S. consumer costs fell 1.3 percent in September from a year earlier, according to the Labor Department. They dropped at a 2.1 percent annual rate in July, the most since Harry S. Truman was president in 1950.
Ten-year notes pay a real yield, or what investors get after accounting for the cost of living, of 4.91 percent, above the five-year average of 1.42 percent.
âThe recovery is very weak and the U.S. is running the risk of deflation,â said Hideo Shimomura, who helps oversee the equivalent of about $55.4 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset, part of Japanâs largest bank.
CONTINUED
Japan Tops China Buying Treasuries as Lost Decade Survivors Buy
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Wes Goodman and Cordell Eddings
http://www.bloomberg.com/apps/news?pid=20601087&sid=am7sso5EFo8c&pos=4
Nov. 9 (Bloomberg) -- Japanese investors who lived through a decade of deflation and recessions say U.S. Treasuries are a bargain even with yields at about the lowest levels since at least the 1960s.
Japan bought a net $105 billion of U.S. government debt through August, exceeding China as the biggest foreign buyer and boosting its holdings to $731 billion, or more than 10 percent of the total market, Treasury Department data show. The 17 percent increase is the most since a 25 percent surge in 2004.
Mizuho Asset Management Co. and Mitsubishi UFJ Asset Management Co. are among the investors buying U.S. bonds because they see similarities between Americaâs response to the recession and their governmentâs efforts during the so-called lost decade of the 1990s. An index of Japanese debt securities compiled by Bank of America Corp.âs Merrill Lynch unit returned 90 percent in the 1990s, while the Nikkei 225 Stock Average fell as much as 67 percent between January 1990 and October 1998.
âThe U.S. economy has faced a double whammy: the recession and credit contraction,â said Akira Takei, head of non-yen denominated bonds at Mizuho Asset in Tokyo, a unit of Japanâs second-largest bank. âThe U.S. will face a triple whammy with deflation. Thatâs good for the Treasury market.â
The 3.625 percent benchmark U.S. 10-year note due in August 2019 closed last week at 101 1/32 to yield 3.5 percent. The yield has averaged 3.19 percent in 2009, the lowest since the Federal Reserve began providing daily data on the securities in 1962 and down from 3.64 percent for all of 2008.
Takaeiâs Forecast...
Takei, who helps oversee the equivalent of $21 billion, bought Treasuries in July and predicts 10-year yields will decline to 2.75 percent by year-end. An investor who purchased $10 million of the notes would earn about $715,000 if yields dropped to Takeiâs forecast, according to data compiled by Bloomberg.
Government securities have lost 2.8 percent since December, when 10-year yields fell to 2.04 percent, according to the Merrill Lynch U.S. Treasury Master Index data. Treasuries are on a pace to post their first annual losses since 1999 as the recovery in the global economy following the worst financial crisis since the Great Depression reduces the appeal of the debt as a haven.
Similar to Japanâs response to its real estate collapse in the 1990s, the U.S. is flooding the economy with cash only to see financial institutions sock the money away in bonds instead of making loans.
Inflation Protection
The Fed and the U.S. government have spent, lent or guaranteed $11.6 trillion to spur the worldâs biggest economy from recession and curb a decline in asset prices. The Standard & Poorâs 500 index has gained 58 percent to 1,069.30 from its low this year of 676.52 on March 9, though itâs below the peak of 1,576.09 reached in October 2007.
âJapanese investors have been skewed to expecting deflation because of their own experience, but the more pressing concern over the intermediate term is inflation,â said Michael Pond, an interest-rate strategist in New York at Barclays Plc, one of 18 primary dealers that trade with the Fed.
Pond favors Treasury Inflation Protection Securities, or TIPS, and said Asian investors, including the Japanese, have been buying the bonds on concern the dollar will continue to decline and inflation will accelerate. Barclays expects consumer prices to rise 1.9 percent in 2010, after a decline of 0.4 percent this year, data compiled by Bloomberg show.
During the 1990s, Japanâs economy grew at an average rate of about 1 percent a year as asset prices tumbled. It hasnât fared much better this decade, with gross domestic product expanding 0.2 percent on average and consumer prices falling 0.2 percent.
Consumer Prices
The threat of deflation, a general drop in prices that enhances the value of a bondâs fixed payments, makes Treasuries attractive to Japanese investors even with bond yields rising from last yearâs lows. U.S. consumer costs fell 1.3 percent in September from a year earlier, according to the Labor Department. They dropped at a 2.1 percent annual rate in July, the most since Harry S. Truman was president in 1950.
Ten-year notes pay a real yield, or what investors get after accounting for the cost of living, of 4.91 percent, above the five-year average of 1.42 percent.
âThe recovery is very weak and the U.S. is running the risk of deflation,â said Hideo Shimomura, who helps oversee the equivalent of about $55.4 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset, part of Japanâs largest bank.
CONTINUED