Japanese Splurge on Foreign Bonds as U.S. Yields Near Record Low

Updated on
  • Foreign bond buying comes on top of record purchases last week
  • Fukoku Mutual says it bought Treasuries as yen strengthened

Japanese investors rushed into foreign debt for a second week, government figures showed, as benchmark Treasury yields held within a quarter percentage point of the record low.

Fund managers in the Asian nation bought a net 1.72 trillion yen ($16.2 billion) of medium- and long-term debt abroad in the seven days ended July 15, the Ministry of Finance said. They bought a record 2.55 trillion yen of debt the previous week, based on data on the ministry website that go back to 2005. MOF figures show Treasuries are their favored assets.

Japanese investors have two reasons to buy U.S. notes and bonds. Ten-year Treasuries yield 1.57 percent, versus minus 0.225 percent for similar-maturity bonds in their home market. The yen reached its strongest level since 2013 in late June.

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“A lot of Japanese people are trying to find a new place to put the money amid negative yields at home,” said Kei Katayama, a bond manager in Tokyo at Daiwa SB Investments, which has about $51 billion in assets. “That trend will continue. U.S. Treasuries are attractive.”

Benchmark U.S. 10-year note yields rose two basis points, or 0.02 percentage point, to 1.58 percent as of 7:23 a.m. New York time, according to Bloomberg Bond Trader data. The 1.625 percent security due in May 2026 fell 7/32, or $2.19 per $1,000 face amount, to 100 13/32. The record-low yield was 1.32 percent on July 6.

Matthew Hornbach, Morgan Stanley & Co.’s head of global interest-rate strategy, said in an interview on Bloomberg Television that Treasury yields can continue to fall, even if the Federal Reserve raises interest rates. New York-based Hornbach, who called this year’s Treasury market rally, forecast earlier this week the benchmark 10-year yield will drop to 1 percent in the first quarter of 2017.

Treasuries have risen 0.2 percent this week, rebounding from a 1.2 percent loss in the five days to July 15, based on the Bloomberg World Bond Indexes.

Fukoku Mutual Life Insurance Co., which has $61.7 billion in assets, added to its Treasury holdings as the yen strengthened, said Yoshiyuki Suzuki, the company’s head of fixed income in Tokyo.

“I bought a little this month and last month,” he said. “The yield is not attractive but the currency level was good.”