Japan Funds Buy Bunds First Time in 5 Months, Sell U.K. Debt

(Bloomberg) -- Japanese investors bought German and French bonds in February, when deepening concern over Europe’s economic slowdown spurred speculation the region’s central bank would join the Federal Reserve in turning dovish on monetary policy.

Key Insights

  • Funds bought a net 632.7 billion yen ($5.7 billion) of bunds, ending a four-month selling streak, according to balance-of-payments data released by the Ministry of Finance on Monday
  • Japanese continued to pile money into U.S. and French sovereign debt in February, a month that saw growth forecasts getting slashed around the globe, spurring gains in bonds
    • Investors were net buyers of U.S. debt for a fourth straight month; boosted holdings of French notes for a second month
  • France and the U.S. emerged as the top two destinations for Japanese funds during the last fiscal year
  • At 146.6 billion yen, purchases of Dutch sovereign debt were the highest since April 2018
  • Funds offloaded 103.5 billion yen of U.K. bonds, the largest net sales in a year
Japan Funds Buy Bunds First Time in 5 Months, Sell U.K. Debt

Market Comments

  • The outlook for European bond prices brightened in February, as prospects of the ECB potentially tightening monetary policy receded following the Fed’s dovish stance, says Tsuyoshi Ueno, senior economist at NLI Research Institute in Tokyo
  • Funds may have become enthusiastic about German bonds as their positions were light after having unloading the notes in the previous few months: Ueno
  • “It was probably difficult for Japanese investors to invest in U.K. bonds as prospects for a Brexit outcome continued to change very rapidly”
  • “As Japan’s 10-year bond yield fell deeper into the negative territory, demand for buying foreign bonds by domestic investors appears to have intensified”

Numbers

  • Table below shows net buying/selling of overseas sovereign bonds in billions of yen, based on data from Japan’s Ministry of Finance:
CountryFeb 2019Jan 2019Dec 2018Nov 2018Oct 2018Sep 2018
U.S.750.1362.7506.81000.7-385.52274.5
Canada55.3-41.8-54.3-24.611.6-98.4
Australia-30.9-2.7-18.9-223.891.568.5
Germany632.7-449.5-151.2-41.3-510.6856.2
France718.5984.7-375.4-65.1-648.6536.5
Italy798726.325.389.1-44.6
Netherlands146.6-19.520.8-85.8-14.948.6
U.K.-103.522.6-1.4-33.6-83.37.4
Denmark-1.613.539.5-68.35.411.7
Sweden-26.3-23.931.727.833.956.9
  • NOTE: Sovereign bonds refer to securities issued by governments, government agencies and local authorities, and those with the original maturities of more than one year

Background

  • In early February, the European Commission lowered its growth forecasts for all the euro region’s major economies from Germany to Italy and warned that Brexit and the slowdown in China threaten to make the outlook even worse

©2019 Bloomberg L.P.