Japanese Chasing Overseas Debt Miss Out on Bond Rally at Home

  • Investors bought $6.24 billion of debt outside Japan last week
  • Demand for U.S. debt is showing up in this weeks auctions

Japanese investors bought overseas debt for a sixth straight week -- capping almost a year of purchases abroad even as their local bond market surged.

Fund managers in the nation acquired a net 684 billion yen ($6.24 billion) of bonds outside the nation in the seven days ended May 20, the Ministry of Finance reported Thursday. They have purchased every month from July through April, the latest figures available show.

Japanese investors are being enticed by 10-year yields of 1.85 percent in the U.S., versus minus 0.105 percent in Tokyo. The price they’ve paid is that they’ve given up gains in their local market, which has returned 7.1 percent in the past year, versus 3.5 percent for Treasuries, based on the Bloomberg World Bond Indexes. The outflows will keep going, said bond investor Hideaki Kuriki.

“That is not because the American economy is weak or inflation is low,” said Kuriki, a debt investor at Sumitomo Mitsui Trust Asset Management, which oversees $74.7 billion. “That is because Japanese investors buy U.S. Treasury bonds. Supply-demand is the main factor for the U.S. Treasury market.”

Demand for U.S. debt is showing up at government auctions.

Wall Street dealers were left with the fewest Treasuries on record at two note sales this week.

A gauge of demand at a $34 billion auction of five-year debt Wednesday rose to the highest since 2014 as primary dealers were awarded the lowest percentage at an offering of the securities in data going back to 2003. The sale came a day after a $26 billion two-year note auction also left primary dealers with the lowest award on record.

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