Abe aids Fed as Japan seen buying $558 billion foreign debt

Shinzo Abe is set to become the best friend of investors in Treasuries as Japan’s prime minister buys U.S. government bonds to weaken the yen and boost his nation’s slowing economy.

Abe’s Liberal Democratic Party pledged to consider a fund to buy foreign securities that may amount to 50 trillion yen ($558 billion) according to Nomura Securities Co. and Kazumasa Iwata, a former Bank of Japan deputy governor. JPMorgan Securities Japan Co. says the total may be double that. The purchases would further weaken a currency that has depreciated 12% in four months as the nation suffers through its third recession since 2008.

The support would help Federal Reserve Chairman Ben S. Bernanke damp yields after the worst start to a year since 2009, according to the Bank of America Merrill Lynch U.S. Treasury Index. Government bonds lost 0.5% as improving economic growth in the U.S., Europe and China curbed demand for the relative safety of government debt even with the Fed buying $45 billion in bonds a month.

“I can’t imagine the U.S. would be disappointed in Japan buying Treasuries,” Jack McIntyre, a fund manager who oversees $34 billion in global debt at Brandywine Global Investment Management in Philadelphia, said in a Jan. 8 telephone interview. “The Fed’s been doing all the heavy lifting.”

Bond Yields

Ten-year note yields fell one basis point, or 0.01 percentage point, to 1.86% at 1:34 p.m. New York time. The yield touched 1.97% on Jan. 4, the highest level since April. This year, U.S. debt maturing in 10 years or longer ranked 125 out of 144 indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies.

The average Treasury 10-year note yield in 2012 was the lowest since at least World War II at 1.79%, compared with the 20-year mean of 4.73%. The average 10-year yield for Japan’s debt in 2012 was 0.85%, and was 1.85% during the past 20 years.

Strategists are already paring back bearish forecasts for U.S. debt. The 10-year Treasury yield will rise to 2.27% by year end, according to the median prediction of economists in a Bloomberg survey. In July, the estimate was 2.7%.

Hiromasa Nakamura, a senior investor for Tokyo-based Mizuho Asset Management Co., which oversees the equivalent of $38 billion, is more bullish. Ten-year Treasury yields will fall to a record low of 1% by year-end as Japan ramps up purchases, while the yen falls to 90 per dollar, he said in an interview on Jan. 11. Japan’s buying “will be one of the positive factors in the market.”

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