Japan funds buy record amount of Italian debt after EU stimulus

Tokyo

JAPANESE investors bought an unprecedented amount of Italian sovereign bonds in July, just as the European Union (EU) clinched a massive stimulus package to help the bloc overcome the economic impact of the coronavirus pandemic.

Funds from Japan bought a net 372.7 billion yen (S$4.8 billion) of Italian debt, after selling 56.1 billion yen of the nation's bonds in June, according to preliminary portfolio data from the Ministry of Finance (MOF) released on Tuesday. They also added 465.4 billion yen of Australian debt in July, in a fifth straight month of purchases.

Tsuyoshi Ueno, a senior economist at NLI Research Institute, said: "Investors directed funds into Italy as concerns over the country's fiscal issues eased after the EU agreed on a stimulus package in July.

"Italy's bonds drew demand as their yields remained high, relative to other countries."

Japanese funds were net buyers of US sovereign bonds for a second consecutive month in July, while they sold the biggest amount of German bonds since August 2018.

Japanese banks' trust accounts, which are proxies for pension funds, continued to be the main buyers of foreign bonds among major investor classes; their purchases tend to pick up when the yen appreciates, Mr Ueno said.

Trust accounts bought a net 1.87 trillion yen of foreign debt in August, on top of 1.72 trillion yen a month earlier, separate MOF data showed.

Meanwhile, global funds bought a record amount of non-sovereign Japanese bonds, said the nation's balance-of-payment data. Net purchase climbed to 1.91 trillion yen in July, surpassing a previous record of 1.78 trillion yen set in July 2019.

Mr Ueno said: "Foreign investors may have shifted into Japanese corporate bonds as they offered higher spreads than Japanese government bonds." BLOOMBERG