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A Japanese government bond rally ground to a halt Tuesday after the Finance Ministry lowered the coupon rate for 10-year bonds to an all-time low of 0.8 percent.

Some analysts said, however, that the market is probably just taking a breather. They claimed that, although investors are wary of bonds’ high prices, a dearth of attractive investment options will lure them back to the market.

The ministry sold 1.33 trillion yen worth of 0.8 percent, 10-year bonds at Tuesday’s auction. Bids totaled a mere 3.01 trillion yen, putting the bid-to-cover ratio, a gauge of demand, at some 2.3.

This is well below the record 18.6 marked in January’s auction, and down from the 2.9 logged in November.

Earlier in the day, the ministry set the coupon rate on new 10-year government bonds at 0.8 percent per annum, an all-time low and down 0.1 percentage point from January issues.

This cut reflects the recent popularity of bonds as “safe haven” investments amid expectations of prolonged deflation.

Issuance to be faster

The Finance Ministry plans to accelerate the issuance of Japanese government bonds designed for individual investors in the early part of fiscal 2003 due to strong demand, Finance Minister Masajuro Shiokawa said Tuesday.

On Monday, financial institutions began taking orders for 380 billion yen in new government bonds that are scheduled to be issued March 10.

The ministry plans to issue a total of 1.5 trillion yen worth of the new bonds in quarterly installments during fiscal 2003, which begins April 1. Due to their popularity, the ministry will issue a greater percentage of the total than initially planned in fiscal first half.

“We’re glad to find that the bonds are very popular and that people feel confident enough to invest in them,” Shiokawa said. “We will carry out (the issuance of the bonds) at a faster pace than initially planned.”

Shiokawa added that he has ordered 3 million yen worth of the bonds himself.

Amid the prolonged economic slump and concerns over a possible U.S.-led war against Iraq, investors searching for safe investments have been flocking to the bonds, which are guaranteed by the government.

On Monday, post offices sold out their entire first allotment of 50 billion yen worth of the bonds, while some private financial institutions also reported selling all the bonds they were authorized to sell, according to the ministry.

At a separate news conference the same day, economic and fiscal policy minister Heizo Takenaka said of the new bonds’ popularity that he thinks money is flowing from high-risk investments to lower-risk instruments.

“Money has been flowing toward lower-risk, public sector investments since the 1990s,” he said. “This is a trend that should be studied.”

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