TOKYO—The Japanese government is now getting paid to borrow money, after selling benchmark bonds with a negative yield for the first time Tuesday.
The upside-down auction followed three years of aggressive monetary easing by the Bank of Japan, which has driven interest rates lower in a bid to fuel lending. First the BOJ undertook massive purchases of JGBs and other assets, and in late January introduced negative interest rates on some bank reserves for the first time.
The move into negative rates pushed the yield on existing 10-year JGBs into negative territory, but 10-year JGBs had never been sold with a negative yield at auction, in which the bond buyer agreed at the outset to pay for the privilege of lending money.
That changed Tuesday when the Ministry of Finance sold 10-year bonds with an interest rate of 0.1% at the average price of ¥101.25, producing a yield of minus 0.024% if held to maturity.
Analysts had expressed concern about demand ahead of the auction, and suggested that many buyers planned to sell their JGBs to the central bank for a profit in the near term. Such trades would be made with the expectation that yields will continue falling as the BOJ pushes ahead with more asset purchases and rate cuts.
Shuichi Ohsaki, chief Japan rates strategist at Bank of America Merrill Lynch, said the market could become crowded with such speculative trading, resulting in higher volatility.
Some economists said the falling rates offer the Japanese government an opportunity to expand fiscal stimulus to revive the sputtering economy. Public debt in Japan is more than two times the size of the economy, and the government is now on a deficit-cutting path. But some said the economy should come first.
“The government should issue the necessary bonds, as we’re at zero interest rates,” Mr. Takenaka said in an interview Friday. “Fiscal health can only be achieved through economic health.”Heizo Takenaka, a former economy minister who advises Prime Minister Shinzo Abe, said the government should prepare a stimulus package of about $50 billion later this year.
Many policy makers and economist argued that its debt level isn’t a true reflection of its financial footing because about 90% of its debt is held by domestic investors.
In late January, the BOJ took the extraordinary step of imposing a negative interest rate of 0.1% on a portion of commercial banks’ yen deposits at the central bank, joining several European central banks in resorting to the experimental policy tool to combat weak growth and low inflation. The BOJ measure became effective on Feb. 16.
On Feb. 9, Japan’s benchmark 10-year government-bond yield fell into negative territory for the first time.
As of Tuesday, investors were receiving a negative 0.060% yield on the 10-year JGB. That effectively means an investor who lends the government 10,000 yen for 10 years has to pay 6 yen a year to earn the right to do so. In dollar terms, the investor is giving up about 6 cents a year on an $89 loan to the government.
Superlow yields on government bonds are increasingly common as governments enact aggressive monetary easing. The 10-year U.S. government debt yields 1.71%, while 10-year German debt yields 0.11% and 10-year U.K. bonds yield 1.34%.
—Takashi Nakamichi and Eleanor Warnock contributed to this article.
From: The Wall Street Journal
