The Ministry of Finance held an auction Monday selling 10-year government bonds under a repurchase agreement for the first time, drawing unusually strong interest that resulted in the bonds fetching a negative interest rate.
The bonds were knocked down at minus 0.288 percent on average, meaning that the issuer, the ministry, can raise money and earn interest rather than pay it.
The strong bidding interest was generated partly because the bonds were in limited supply, market sources said.
“If retained, these bonds can also be made use of for settlements of bond futures transactions,” an official at a major commercial bank said.
The ministry held the auction to raise funds for its Trust Fund Bureau account, which is expected to see a major outflow of funds because of maturing postal savings contracted 10 years ago when interest rates were high.
Postal savings are a major source of financing for the account, which channels funds into national and local government projects.
In Monday’s auction, 300 billion yen worth of bonds were offered, drawing bids nine times as large, worth around 2.77 trillion yen, according to the ministry.
Moody’s Investors Service on Monday shrugged off speculation that the U.S. credit rating agency may lower its credit ratings on Japanese government bonds.
The speculation began in mid-April, when the Foreign Correspondents’ Club of Japan announced that two senior economists at Moody’s would speak at the club Thursday.
“It is true that they will speak on Moody’s announcement in February that it will put the Japanese government debt on watch for a possible downgrade, but the luncheon meeting is not related to any move to downgrade ratings on Japan at all,” said Kazumi Takemoto, managing director of Moody’s Japan K.K., the Japanese unit of Moody’s.
Thomas Keller, managing director of the rating group of Moody’s Japan, and Vincent Truglia, managing director of the sovereign risk unit of Moody’s Investors Service, are scheduled to attend the luncheon at the Foreign Correspondents’ Club of Japan in Tokyo on Thursday.
They are expected to speak about Japan’s debt rating as well as the health of the Japanese economy.