Currencies

[thepennyking]

U.S. Notes Decline on Concern BOJ to End Yen Sales, Reduce Debt Purchases
March 29 (Bloomberg) -- U.S. 10-year notes fell in Europe, pushing yields to their highest in more than three weeks, after the London-based Times said the Bank of Japan may end its yen sales, fueling speculation it will buy less U.S. government debt.

Quickening economic growth means Japan no longer needs a weaker currency to boost exports, the Times said, citing unidentified officials at Japan's central bank, which buys and sells the yen on behalf of the Ministry of Finance. A ministry official said Japan's currency policy hasn't changed.

``We have seen the Bank of Japan has changed strategy,'' regarding selling yen, said Cyril Beuzit, head of interest-rate strategy in London at BNP Paribas SA, France's biggest bank by assets. ``It has to be seen as a negative for Treasuries.''

The 4 percent note maturing February 2014 fell 5/8, or 6.25 per $1,000 face amount, to 101 6/32 as of 8:48 a.m. in London, according to Merrill Lynch & Co. Its yield rose 2 basis points to 3.85 percent. A basis point is 0.01 percentage point. The yen rose to 105.59 per dollar, according to EBS prices, from 106.02 late Friday in New York.

Foreign central-bank holdings of Treasury and agency securities in accounts at the Federal Reserve rose by a daily average of $7.9 billion in the week ended Wednesday to $1.2 trillion. Japan is the biggest overseas holder of Treasuries, with $577 billion as of the end of January.

`Officially Validated'

``It's officially validated there will be less purchases of Treasuries,'' said Jai Tiwari, a bond strategist at research firm IDEAglobal Ltd. in Singapore. ``We are likely to see a move higher'' in yields. Bond yields move inversely to prices.

The BOJ sold 10.5 trillion yen ($99.4 billion) in the two months to Feb. 25, about half of 2003's record sales. The yen has strengthened 6.4 percent since reaching a five-month low of 112.33 on March 8 on speculation an improving economy will allow Japan to tolerate a stronger currency. The Finance Ministry will release yen-sales figures for March on Wednesday.

Some traders, such as Kikuko Takeda at Bank of Tokyo- Mitsubishi Ltd. in Tokyo, said other factors, such as accelerating inflation, may affect the $3.66 trillion Treasury market.

``Although the Bank of Japan has played a big role, the Treasury markets are huge and the impact from less yen sales should be limited,'' Takeda said in Tokyo.

Treasuries on Friday had the biggest drop in two months after measures of inflation and consumer confidence rose. A Commerce Department report Thursday showed the personal consumption expenditure price index, excluding food and energy prices, rose 1.1 percent from a year before in February, matching October and the fastest since it gained 1.3 percent in July.

Job Creation

Treasuries may also fall for a second week on prospects the government will say the economy this month added the most jobs since December 2000. The Labor Department may say Friday the economy added 120,000 jobs in March, from 21,000 in February, according to the median forecast of 61 economists surveyed by Bloomberg News.

The yield on the 10-year note fell 17 basis points on March 5, when the Labor Department released the February jobless figures.

Ried, Thunberg & Co.'s investor sentiment index was 44 on Friday, compared with 42 the previous week. The reading has been below 50 -- a sign investors expect the note's price to drop -- for 16 weeks, the longest stretch since mid-2002. The 63 international investors surveyed by the Westport, Connecticut- based research firm manage $1.5 trillion. Ried, Thunberg is a unit of London-based ICAP Plc, the world's largest interbank brokerage.


To contact the reporter on this story:
Beth Thomas in Tokyo [e-mail]

To contact the editors of this story:
Justin Carrigan at [e-mail];
Walter Krumholz at [e-mail]

Last Updated: March 29, 2004 03:32 EST