Yield Surge Spurs Biggest Japan Buying of U.S. Bonds Since 2016

(Bloomberg) -- Japanese investors bought the most U.S. sovereign bonds since July 2016 in September, when the Federal Reserve raised interest rates for the third time this year, spurring an advance in the dollar and Treasury yields.

  • Investors bought a net 2.28 trillion yen ($20 billion) of the debt, according to balance-of-payments data from the Asian nation’s Ministry of Finance Thursday
  • “Japanese investors may be increasing purchases of unhedged U.S. sovereign bonds as the perception toward dollar-yen improved after the Fed’s tightening,” says Eiichiro Miura, general manager of the fixed-income investment department at Nissay Asset Management Corp. in Tokyo

Other Key Insights

  • Japanese investors were net buyers of German sovereign debt in September for the first time since March, MOF data show
  • Net purchases of French bonds were the biggest since February
  • Japanese funds net sold Italian notes for a second straight month
  • Japanese investors were net buyers of all Spanish debt, including sovereigns, for a 15th consecutive month
  • Separately, preliminary figures for October showed Japanese life insurers sold a net 328 billion yen of foreign bonds, the most since March 2015

Table

  • The table below shows net buying/selling of overseas sovereign bonds in billions of yen
CountrySep 18Aug 18Jul 18Jun 18May 18Apr 18
U.S.2,275.9-857.2327.3-679-2,097170.3
Canada-98.441.6-63.4-6864.4133.5
Australia69118.2-33101.2133.1-115.6
Germany858.4-677-262.2-77-695.9-687.7
France537.6-95.9365.6443-192.5216.8
Italy-42.7-12.975.2-106.5-82.6195.4
Netherlands48.8-25.253.3-3.1114.7163.6
U.K.8.3117.2-50.56.7121.66.3
Denmark11.76.4-9.3-19.84.76.4
Sweden56.925.6-14.9-2322.518.1

More Comments

  • Hedged U.S. bonds haven’t been attractive due to rising dollar-hedging costs, so investors may have allocated their funds into unhedged bonds before the fiscal half ended in September, Miura says
  • At the same time, it’s also possible that they may have bought some U.S. debt even by hedging their currency exposure after the 10-year yield rose above 3 percent, he says, adding that purchases may have continued in October
Yield Surge Spurs Biggest Japan Buying of U.S. Bonds Since 2016

Background

  • U.S. 10-year Treasury yield reached a four-month high of 3.11% in September and climbed 20 basis points during the month, the most since April
  • The dollar-yen currency pair appreciated 2.4% in September, the most in five months
  • NOTE: Sovereign bonds in MOF data refer to securities issued by governments, government agencies and local authorities, and those with the original maturities of more than one year

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