Japan Dumps Record French Debt as U.S. Bond Selling Eases

Updated on
  • Investors sold 1.52 trillion yen of French debt in February
  • Selling of U.S. bonds eased before end of Japan’s fiscal year

Holders of U.S. Treasuries can breathe a sigh of relief as Japan’s spotlight turns to France.

Japanese investors offloaded a record amount of French sovereign debt in February while their selling of U.S. bonds slowed, according to data from the finance ministry and central bank released Monday.

Investors sold a net 1.52 trillion yen ($13.6 billion) of France’s bonds, the most since at least 2005. February’s outflow was the fourth month in a row and compared with net sales of 189.4 billion yen in January. France’s 10-year bond yield climbed to 1.16 percent on Feb. 6, the highest since September 2015, amid concern that Marine Le Pen’s anti-euro campaign would gather momentum before April’s presidential election.

Japanese investors also sold U.S. sovereign debt for a fourth month, though the amount eased to 132.6 billion yen from 1.69 trillion yen in January. Japan is the biggest overseas holder of Treasuries. The country’s Financial Services Agency is discussing with banks how they’re managing their foreign bond portfolios amid rising interest rates since the U.S. election.

“It may be difficult for banks to actively buy foreign bonds from the start of the new fiscal year” as the FSA is monitoring lenders’ investment in overseas debt, said Shuichi Ohsaki, chief Japan rates strategist at Bank of America Merrill Lynch in Tokyo. “The pace of purchases will be slower than in 2016, and banks may be more comfortable in buying yen bonds.”

Purchases of Australian sovereign bonds dropped for a third month, falling to 4.9 billion yen in February from 55.3 billion yen in January. Australia’s dollar was the only one of the Group-of-10 currencies to strengthen against the yen in February, rising 0.9 percent and making it more expensive for Japanese investors to buy the South Pacific nation’s debt.

Sovereign bonds include those issued by governments, government agencies and local authorities and with the original maturities of more than one year

— With assistance by Chikafumi Hodo, and Daisuke Sakai

(Adds comment and purchases of Australian debt.)
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