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Japanese investors splurge on Italian, Aussie bonds in hunt for yield

[TOKYO] Japanese investors bought Italian bonds in June at the fastest pace in more than four years and a record amount of Australian paper as a global decline in bond yields forces investors to seek higher-yielding debt.

Japanese investors also sold German debt in June at the fastest pace in more than a year as the entire German yield curve has slipped into negative territory, reducing the appeal of holding debt from Europe's largest economy.

Fixed-income investors in other countries could follow suit as a wave of interests rate cuts by major central banks threatens to further depress already low bond yields in many countries. The policy easings have come about in the wake of slowing global growth and increasing risks of a recession amid an intensifying Sino-US trade row.

"Bond yields have plunged so much globally in the past several days that, at the moment, there are hardly any bonds Japanese investors will buy," said Makoto Noji, chief FX and foreign bond strategist at SMBC Nikko Securities in Tokyo.

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Japanese investors bought 279.5 billion yen (S$3.64 billion) of Italian bonds on a net basis in June, Japanese finance ministry data showed on Thursday. That marked the biggest monthly net purchase since February 2015.

Local investors favoured Italian debt because reports that the 5-Star Movement is ready to quit Italy's government would reduce the risk of fiscal expansion, Mr Noji said.

In June, Japanese investors bought a net 307.6 billion yen in Australian debt, the highest since current data became available in 2014. In contrast, they disposed a net 665.5 billion yen in German debt, the larges net sales since May 2018.

Local investors also bought a net 83.8 billion yen in Chinese debt, the biggest since October 2016, and purchased a net 1.512 trillion yen of US bonds in June - the biggest since September last year, the data showed.