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Blame Japanese Banks for the Flat Treasury Curve, Citigroup Says

  • Theory of pension-fund buying at the long-end gains clout
  • Japan commercial lenders pare exposure amid hedging costs
Mount Fuji and buildings in the Shinjuku district are reflected on a table at an observation deck in Tokyo.

Mount Fuji and buildings in the Shinjuku district are reflected on a table at an observation deck in Tokyo.

Photographer: Kiyoshi Ota/Bloomberg

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The seemingly worrisome dynamic in the world’s largest bond market -- the flattening Treasury yield curve -- may have a relatively simple explanation: Japanese banks are selling short-dated U.S. debt.

A combined uptick in currency-hedging costs and paper losses on Treasuries with short maturities has likely spurred Japanese lenders to pare exposures in recent months, according to Citigroup Inc., citing shifts in dealer inventories and Ministry of Finance transaction data.