Photographer: Noriko Hayashi/Bloomberg

Japan Slashes Treasury Purchases as Demand for U.S. Debt Wanes

  • Longer-dated debt sees waning interest as Fed tightens policy
  • Ministry of Finance data shows less appetite for European debt

Japanese investors are slashing their purchases of U.S. government bonds, the latest sign of waning demand for Treasuries as the Federal Reserve starts to rein in its balance sheet.

Investors bought 597.7 billion yen ($5.3 billion) of American sovereign bonds in August, down about 54 percent from purchases in July, according to Finance Ministry balance-of-payments data released Tuesday. Their appetite for European debt also fell, turning net sellers of German and French debt after buying heavily in July.

The reduction in appetite for debt in U.S. and Europe came as tensions on the Korean peninsula intensified and as political concern grew that the U.S. government may be forced to temporarily shutdown. Demand from foreigners at U.S. bond auctions for 10-year and 30-year securities over the past six months has also slipped as central banks in the U.S. and Europe prepare to wind back quantitative easing programs.

“Investors turned nervous about buying foreign bonds in general as geopolitical tensions in North Korea intensified,” said Tsuyoshi Ueno, Tokyo-based senior economist at the NLI Research Institute. “August was the month when investors became concerned about the U.S. debt ceiling issue.”

Investors sold 539.8 billion yen worth of German sovereign bonds in August, the MOF data show, after buying net 959.4 billion yen in July. They turned net sellers of French bonds for first time since April, selling 604.6 billion yen in French sovereign bonds, having bought 1.17 trillion yen in July.

“Investors may have taken a pause after buying European bonds actively as the euro limited its gains and German bond yields drifted down,” said Eiichiro Miura, Tokyo-based portfolio manager at Nissay Asset Management Corp.

Buying Canada

While investors cut purchase in U.S. and became net sellers of German and French bonds, Canadian sovereign bonds saw the largest inflow in 10 months. Investors based in Japan bought a net 99 billion yen worth of Canadian sovereign bonds in August, the largest since October last year and up from 22.6 billion yen in July.

“High bond yield levels in Canada have been attracting interest from investors following the central bank’s credit tightening efforts,” NLI’s Ueno said. “Prospects of a higher Canadian currency may also be attracting investor interest.”

Sovereign bonds refer to securities issued by governments, agencies and local authorities and carry original maturities of more than one year.

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