China’s Japan Bond Purchases May Resume After Record Run in 2016
- Swap premium probably explained the past attraction of JGBs
- Some China JGB purchases likely channeled through Europe
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After gorging on a record amount of Japanese bonds in 2015 and the first half of last year, China took a breather. That may end as a widening interest-rate gap starts burnishing the allure of its neighbor’s securities once again.
The Bank of Japan’s mega stimulus in recent years made it attractive for foreigners buying Japanese government bonds when hedging the exposure through the swaps market. Dollar holders benefited from the discount offered to borrow yen. China, one of the largest holders of dollars outside the U.S., was a big buyer of the bonds, BOJ data show.