Japanese dumped the most U.S. Treasuries in two years in June, as the Federal Reserve prepares to raise interest rates as soon as next month.
Investors also sold German bunds for a fourth month, and offloaded the most French sovereign debt on record in data going back to 2005, as low yields globally this year offered the smallest premium over Japanese government bonds since at least 1993. Swaps traders see 54 percent odds that the Fed will increase borrowing costs in September for the first time since 2006.
“Most Japanese are not bullish on the U.S. Treasury market, especially the short end,” which is more sensitive to monetary policy expectations, said Kazuyuki Takigawa, who manages about $6 billion of bonds as the chief fund investor for foreign fixed income at Resona Bank Ltd. in Tokyo. “German bunds are not attractive enough to lure investors from Japan because of the very low level of yields there.”
Investors sold 1.17 trillion yen ($9.4 billion) of long-term Treasuries in June, according to data from Japan’s Ministry of Finance and central bank released Monday. They cut holdings of equivalent bunds by a net 824.3 billion yen, and of French sovereign bonds by 1.28 trillion yen.
The premium offered by Group of Seven peers over Japan’s government debt has averaged 103 basis points this year -- the lowest on record to 1993 -- and dropped as low as 73 basis points on March 31. The average over the previous decade has was 220 basis points.