Japan's five-year govt bond yield touches 0%

Japanese bonds rose in the latest leg of a worldwide surge in government securities, with five-year yields matching Germany's at zero per cent, as falling oil costs indicate inflation will slow.

The effective yield on the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index dropped to 1.21 per cent on Monday, a record low in data starting in 1996. Australia's 10-year yield declined to its lowest level ever. Germany's have touched negative levels every day this month. Switzerland's closed on Monday at a record-low minus 0.127 per cent.

"It's all about oil," said Ali Jalai, a bond trader at Bank of Nova Scotia in Singapore. "Inflation expectations keep coming down. That's forcing the bond market to rally."

US 10-year yield, the benchmark for company and sovereign borrowing costs, declined one basis point to 1.90 per cent as of 12:14 pm in Tokyo, according to Bloomberg Bond Trader data. The 2.25 per cent note due in November 2024 rose 1/8, or $1.25 per $1,000 face amount, to 103 6/32. Japan's 10-year yield fell to a never-before-seen 0.255 per cent.

Japan's 10-year yield fell one basis point to 0.265 per cent, matching a record low. Australia's dropped as much as nine basis points to an unprecedented 2.608 per cent. A basis point is 0.01 percentage point.

The Bank of America sovereign index has returned 3.1 percent in the three months ended on Monday. The MSCI All-Country World Index of shares advanced 2.8 per cent, including reinvested dividends.

Oil tumbles
Government bonds have surged as oil tumbled and as traders prepared for the European Central Bank to start buying government debt as soon as its January 22 meeting.

Crude oil has slumped 14 per cent this year, after tumbling 46 per cent in 2014.

The difference between yields on 10-year Treasuries and similar-maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices, was at 1.56 percentage points. The figure slid to 1.54 last week, the least since 2010.

ECB President Mario Draghi has said policy makers are making "technical preparations" to combat deflation, raising speculation he is preparing a bond-buying programme similar to Japan's to pump money into the economy.

The Bank of Japan's purchases of as much as 12 trillion yen ($102 billion) a month are about equivalent to what the government issues in coupon-bearing securities.