Japan's negative yields drawing record global investment

Tokyo

WHY would global investors buy Japanese government bonds (JGBs) with negative yields when US Treasuries offer the highest premium since 2010? The answer lies in swap markets.

The yield on two-year JGBs dropped to minus 0.03 per cent on Nov 20 for the first time since January after the Bank of Japan stuck to its unprecedented stimulus. Adjusted for payments to lend dollars and borrow yen, the fixed-coupon equivalent was 1.66 per cent on Wednesday in Tokyo. That far exceeds similar-maturity Treasury yields, even after they surged to a five-year high of 0.95 per cent amid speculation that the Federal Reserve will raise interest rates next month.