Japan's Investors Bought Most Treasuries Since 2010 in September

  • Managers piled in as expectations waned for Fed rate rise
  • Japanese boosted sales of Australian government bonds

Japanese investors snapped up Treasuries in September at the fastest pace in five years as the Federal Reserve decided against tightening policy, which would have been the first interest-rate increase since 2006.

Investors in the Asian nation bought 2.82 trillion yen ($23 billion) of U.S. debt in the month, the most since they made their biggest purchases on record in July 2010, based on Ministry of Finance data that goes back to 2005.

The Bank of Japan is purchasing bonds to support the economy, while the Federal Reserve prepares to raise interest rates, and the divergence means fund managers have been able to pick up more than 170 basis points of yield by buying 10-year Treasuries instead of their local debt.

“Japanese banks and life insurers had been underinvested in bonds earlier in 2015 in anticipation of a Fed rate increase,” said Eiichiro Miura, Tokyo-based chief portfolio manager at Nissay Asset Management Corp., which oversees $71 billion. “We expect U.S. 10-year Treasury yields to trade in a range of about 2.2 percent to 2.5 percent and see any advance in yields within this range as an opportunity to buy.”

The 10-year Treasury yield was at 2.33 percent as of 2:16 p.m. Tokyo time Tuesday, up from 2.04 percent at the end of September. The yield on similar-dated Japanese notes was at 0.315 percent.

While the spread is now in excess of 200 basis points, it averaged 180 basis points in September.

Japanese money managers sold 66.1 billion yen of Australian sovereign bonds in September, the most in three months and up from sales of 3.2 billion yen in August.

Investors would have gained 1.1 percent on Treasuries since Sept. 30 in yen terms, accounting for changes in both the bonds and exchange rates, according to data compiled by Bloomberg and the European Federation of Financial Analysts Societies. Australian notes offered a 1.9 percent gain in the same period. Japan’s debt gained 0.4 percent, the data show.

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