Bond Demand Revives as Japan Buyers Pile Back Into Overseas Debt

Global bond demand appears to be reviving with the latest sign being a splurge by Japanese investors at the start of their fiscal year.

Funds based in the Asian nation snapped up 1.7 trillion yen ($15.6 billion) in overseas fixed-income assets in the first full week of April, the most in five months, according to data released by the Ministry of Finance. That may set the tone for strategy briefings by local insurers this month.

“The new Japanese financial year has started well for global bond markets,” said Martin Whetton, head of fixed income and foreign-exchange strategy at Commonwealth Bank of Australia in Sydney. “In the coming week or so, Japanese lifers will reveal their investment intentions in fixed income markets, and we expect U.S. and Australian debt markets to be part of their plans.”

Bond Demand Revives as Japan Buyers Pile Back Into Overseas Debt

Investors had been on the lookout for purchases by the Japanese amid expectations of some recovery following the selloff in Treasuries earlier this year. Japanese funds are the largest overseas holders of U.S. government bonds, and their activity can either drive a rally or pull down the market.

Investors based in Japan also sold the most foreign stocks so far this year in the week ended April 9, the Ministry of Finance data showed. That points to a rebalancing flow toward bonds, a move that is typically popular with pension funds.

Bond Demand Revives as Japan Buyers Pile Back Into Overseas Debt

As Treasuries have stabilized, there are also healthier signs of bond demand from other corners of the global debt market too. Holdings of U.S. Treasury Strips -- a proxy for demand from local pension funds -- jumped in March to the highest since October 2018, data showed last week. The three-month average change in holdings climbed to a record.

In addition, an auction of U.S. 30-year Treasuries this week saw the proportion of the securities bought by direct bidders -- a gauge of institutional demand -- rise to the highest level in six years.

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