Tags: bonds

Pimco: Buy Japanese Bonds

By Dan Weil   |   Monday, 13 Jul 2009 01:52 PM

Pimco, one of the world’s top bond fund managers, recommended that investors purchase Japanese bonds.

Japan’s government bonds might rally enough this year to drive 10-year yields down to six-year lows, the firm said.

And why is it so bullish? Japan’s weak economy has been stagnating for the last 19 years.

“There is a huge risk in not holding (Japanese) bonds. The growth rate won’t rise much and inflation will remain low,” Tomoya Masanao, Pimco’s executive vice president in Tokyo, told Bloomberg.

The International Monetary Fund predicted that Japan’s economy will shrink 6 percent in the fiscal year that began April 1.

The country also is at risk of deflation. Consumer prices, excluding fresh food, dropped a record 1.1 percent in May from a year earlier.

Japanese government bonds will likely outperform U.S. Treasuries this year for the first time in 10 years, according to indexes compiled by Merrill Lynch, Bloomberg reported.

In the longer term, Masanao sees problems for Japanese bonds.

“In the next three- to five-year horizon, the longer-end of the yield curve will be under steepening pressure as fiscal deficit concerns increase,” he said.

Others stress Japan’s economic weakness, too.

"Even though production is picking up, Japan is saddled with huge slack in the economy, and this could pose the threat of a deflationary spiral,” Takeshi Minami, chief economist at Norinchukin Research Institute, told Reuters. “The BOJ (Bank of Japan) is likely to continue its … easing steps to combat deflation."

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Pimco, one of the world’s top bond fund managers, recommended that investors purchase Japanese bonds.Japan’s government bonds might rally enough this year to drive 10-year yields down to six-year lows, the firm said.And why is it so bullish? Japan’s weak economy has been...
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