JGB prices rose on Friday, pushing the yield on the benchmark 10-year bond to its lowest level in nearly nine years, as rising fears about Europe's debt crisis soured investors' stomach for risk and prompted them to seek the safety of fixed-income assets.
The Bank of Japan missed its target for buying government bonds under its market operations on Friday for the first time in more than six years, as banks preferred to hold onto their JGBs rather than sell them to the central bank. The failure of the "rinban" market operation is the BoJ's second this week, after it fell short of its government bond buying target under its asset-buying programme on Wednesday.
The 10-year bond yield shed 2.0 basis points to 0.825 percent after earlier touching 0.815 percent. That was its lowest since July 2003, a year in which JGB yields fluctuated widely, spiking from 0.43 percent in June to over 1.5 percent in August. "The background for the current low yields is different from that of 2003, when it was due to changing outlooks for the Japanese economy rather than global conditions like today," said Credit Suisse strategist Shinji Ebihara.
The front-month 10-year JGB futures contract ended up 0.20 point at 143.45, after rising to 143.63, its highest level since October 2010. European credit fears intensified after Moody's Investors Service cut long-term and deposit ratings of 16 Spanish banks late on Thursday. That added to existing concerns about Greece's political turmoil, which threw doubt over the future of its austerity plan, as well as slumping stocks, which underpinned bonds.