Japan Sold Record U.S. Treasuries in May During Global Bond Rout

U.S. Treasury sales by Japanese investors exceeded purchases by a record in May amid the biggest monthly drop for the securities in more than three years.

Money managers in the Asian nation unloaded a net 3 trillion yen ($30 billion) of U.S. government bonds in a fifth straight month of overall sales that was the largest in data from 2005, the Ministry of Finance said today. In June, Japanese investors were net sellers of overseas debt valued at a record 2.96 trillion yen, taking the total to 10.6 trillion yen this year, the data show. That’s on track for the first net annual sales ever.

A more than 20 percent drop in the yen against the dollar over the past year has prompted funds managers in Japan to take profit on their offshore debt holdings. At the same time, the Japanese bond market is being spared a global rout that’s pushed the U.S. Treasury 10-year yield to a two-year high as the Bank of Japan buys sovereign debt from the market.

“The Treasury market in the U.S. is in a bear market,” said Steven Mansell, the Sydney-based head of Group of 10 rates strategy for the Asia-Pacific region at Citigroup Inc. “The stock market in Japan is doing quite well, the data is surprising on the upside, so it’s very unlikely that the Japanese are going to start buying large amounts of foreign bonds.”

‘Portfolio Shift’

BOJ Governor Haruhiko Kuroda said after leading his first policy meeting on April 4 that he’d use government bond purchases to double the country’s monetary base by the end of 2014. The unprecedented program would lower domestic debt yields and encourage a “portfolio shift” into stocks, foreign bonds and other assets, Kuroda told reporters at the time. The monetary base is cash in circulation and the money that financial institutions have in deposits at the central bank.

The move into offshore debt has yet to materialize, with the finance ministry data showing an acceleration in offshore-bond sales from April through June. The Topix index has climbed 38 percent this year, as Japan’s equity markets post the biggest gains among 24 developed markets tracked by Bloomberg.

Japanese investors sold 133 billion yen of Australian government securities in May, in a record 10th month of net sales, and 313 billion yen of Australian dollar-denominated debt. Euro-based bond buying was the largest among the 10 currencies tracked at 1 trillion yen, with net purchases of German sovereign securities worth 1.2 trillion yen.

Yen Depreciation

The yen slid 21 percent versus the dollar, 25 percent against the euro and 11 percent against the Australian currency over the past 12 months. It traded at 101.23 per dollar as of 12:01 p.m. in Tokyo after earlier touching 101.53, the least since May 30. It was little changed at 129.86 per euro and climbed 0.1 percent to 91.69 per Australian dollar.

U.S. Treasuries have lost 3.9 percent this year, German debt is down 1.6 percent and Japanese government securities are up 0.3 percent, Bloomberg data show. The U.S. Treasury market fell 2 percent in May, the biggest loss since December 2009, according to Bank of America Merrill Lynch data.

A broad global market index slid 1.5 percent in May, the most since April 2004 for a single month.

“If JGB yields were to rise sharply the BOJ would step in,” said Mansell. “We still think that the BOJ will have to take more stimulatory measures later this year in order to sustain the momentum.”

Before it's here, it's on the Bloomberg Terminal.