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Japan Negative Rates Alchemy Beats Australia's Highest AAA Yield

  • Swap to Japan debt with Aussie gives 1.07 point yield pickup
  • Funds around world show `quite strong demand for JGBs:' CBA
People walks on the shopping district in Omotesando, Japan, on Friday, March. 1, 2013. Photographer:Noriko Hayashi
Photographer: Noriko Hayashi/Bloomberg
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Dislocations in Japan’s debt market are providing investors an unlikely opportunity to turn negative rates into assets that yield more even than Australian bonds.

The Bank of Japan’s policy experiments have pushed local fund managers to seek higher returns abroad, driving the cost of protecting the flood of money moving offshore from currency swings to a record in March. Some investors have spotted an opportunity in taking the opposite side of the trade, using the cross-currency basis swap market to turn Japanese government bonds into high-yielding synthetic assets.