Japan Funds Buy Record Amount of Italian Debt After EU Stimulus

Japanese investors bought an unprecedented amount of Italian sovereign bonds in July just as the European Union clinched a massive stimulus package to help the bloc overcome the economic impact of the coronavirus pandemic.

Funds from Japan bought a net 372.7 billion yen ($3.51 billion) of Italian debt, after selling 56.1 billion yen of the nation’s bonds in June, according to preliminary portfolio data from the Ministry of Finance released on Tuesday. They also added 465.4 billion yen of Australian debt in July, in a fifth straight month of purchases.

“Investors directed funds into Italy as concerns over the country’s fiscal issues eased after the EU agreed on a stimulus package in July,” said Tsuyoshi Ueno, a senior economist at NLI Research Institute. “Italy’s bonds drew demand as their yields remained high relative to other countries.”

Japan Funds Buy Record Amount of Italian Debt After EU Stimulus

Japanese funds were net buyers of U.S. sovereign bonds for a second consecutive month in July while they sold the biggest amount of German bonds since August 2018.

Japanese banks’ trust accounts, which are proxies for pension funds, continued to be the main buyers of foreign bonds among major investor classes and their purchases tend to pick up when the yen appreciates, Ueno said. Trust accounts bought a net 1.87 trillion yen of foreign debt in August, on top of 1.72 trillion yen a month earlier, separate MOF data showed.

Global funds

Meanwhile, global funds bought a record amount of non-sovereign Japanese bonds, according to the nation’s balance-of-payment data. Net purchase climbed to 1.91 trillion yen in July, surpassing a previous record of 1.78 trillion yen set in July 2019.

“Foreign investors may have shifted into Japanese corporate bonds as they offered higher spreads than Japanese government bonds,” Ueno said.

The following table shows net purchases/sales of overseas sovereign bonds in billions of yen, based on data from Japan’s Ministry of Finance:

CountryJul 2020Jun 2020May 2020Apr 2020Mar 2020Feb 2020
U.S.1965.73461.2-2303.2-50455383.81453.8
Canada75.5-40.1220225.4-6.821.5
Australia465.4358.8645.9361.4101.7-12.9
Germany-673.7-122.2125.1-133.9-366.6305.8
France8.3182.8-666.3-400-1703.3442.3
Italy372.7-56.1-220.5369.1-68.3324.6
Netherlands-1090.1115.48.9-126.5111.6
U.K.-190.33283.4-108.1-25.3-37.4
Denmark0.7-59.2-101.2-81.4-3435.6
Sweden-0.3-9.3-16.8-21.4-50.97.9

*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.

©2020 Bloomberg L.P.

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