Japanese investors dump record amount of foreign bonds after surprise market rout

[TOKYO] Japanese investors sold a record amount of foreign bonds late last month, with banks seen dumping US bonds, although market participants expect buying to resume when the new financial year starts next month.

Data from the Ministry of Finance showed this week Japanese investors sold a total of 3.6 trillion yen (S$44.49 billion) of foreign bonds during the second and the third week of February.

That was their biggest net selling in any two-week period since the ministry started collecting data in 2005, almost cancelling out their constant net buying since the start of the year.

"They appear to have essentially sold all they have bought so far this year," said Masahiko Loo, portfolio manager at AllianceBernstein.

US bond prices have been crumbling since last month as rising hopes of economic normalisation stoked inflation fears.

The benchmark 10-year Treasuries yield rose to a one-year high of 1.614 per cent last month, compared to around 0.910 per cent at the start of the year.

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While many investors had expected bond yields to rise over time, in line with the recovery in the economy, the pace of their rise took many by surprise, prompting a sell-off.

"Some banks were mainly buying short-term bonds, assuming they will be stable because of the Federal Reserve's policy commitment. But even five-year bonds came under pressure," said an analyst at a US brokerage, who spoke on the condition of anonymity.

The five-year US bonds yield rose to as high as 0.865 per cent on Thursday last week, double the level at the start of the month.

But analysts suspect Japanese banks' appetite could come back after the financial year ends on March 31.

Many market players also say the country's longer-term investors such as insurers and pension funds are likely to have stayed on the sidelines so far in the global bond sell-off.

REUTERS