Japan Love Affair With French Debt at Record; Bunds Spurned

Japanese investors extended their love affair with French debt in June, capping two months when they snapped up securities equal to more than 80 percent of the European nation’s bond sales.

Investors bought a net 2.98 trillion yen ($29.3 billion) of France’s notes maturing in a year or more over the two months -- 1.055 trillion yen in June and 1.92 trillion yen in May -- according to data today from Japan’s finance ministry and central bank. That’s the largest buying spree on record and came as France auctioned a total of 25.95 billion euros ($34.8 billion) over the period.

Japanese managers offloaded 104.7 billion yen of German bunds in June, a sixth straight month of sales and the longest streak in data going back to 2005.

“French debt looks more attractive than German bunds because the Japanese investors are after yields,” said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd. “They’re still hesitant to take risks with debt from countries such as Italy and Spain.’

The appeal of French debt this year increased after benchmark bund yields dropped to record lows. Germany’s 1.03 percent yield is the least in the euro area and compares with 1.46 percent for France, 2.91 percent for Italy and 2.35 percent for U.S. Treasuries. Yields on French, Austrian, Dutch and Finnish 10-year bonds dropped to records today.

Europe Rally

Bonds across Europe have climbed this year, led by a 22 percent gain in Greece and a 16 percent advance in Portugal for debt due in more than 12 months. The nations offer the highest 10-year yields for euro-area members tracked by Bloomberg at 6.52 percent and 3.9 percent respectively.

French notes returned 7.5 percent, while German bunds delivered a 6.3 percent gain, the data show.

Demand for the sovereign securities increased after the European Central Bank in June decided to cut interest rates, introduce a deposit charge and provide cheap loans. President Mario Draghi’s July 2012 pledge to do ‘‘whatever it takes” to backstop the currency bloc spurred investor confidence that the euro region wouldn’t break up.

Japanese investors also boosted their holdings of U.S. Treasuries by 424.4 billion yen, and purchased a net 12.4 billion yen of Australian bonds.

To contact the reporters on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Jonathan Annells, Nicholas Reynolds

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