Japanese investors dump US, French bonds in December

Japanese investors dumped US and French bonds in December, government data showed on Wednesday, as the post-US election global bond sell-off prompted market participants to unwind aggressive holdings of these two countries’ debt.

Japanese investors sold 2.262 trillion yen ($20.1 billion; Dh73.8 billion) of US bonds in December, data from Japan’s Ministry of Finance showed. This is their biggest net selling since May 2013, when US bonds crashed on suggestions from then Federal Reserve Chairman Ben Bernanke that the central bank could taper its bond buying programme.

US bond prices have plunged since US President Donald Trump’s election victory in November, forcing Japanese investors to do an about-face after massive buying of dollar debt products that ranged from US Treasuries to corporate debt.

Record high

Still, despite the big sell-off in December and smaller net selling in November, last year saw their US bonds buying hit a record high of 15.4 trillion yen ($137 billion) as they hunted yield in US bonds after the Bank of Japan’s aggressive monetary policy diminished returns on domestic bonds.

Japanese investors also sold 232 billion yen (1.94 billion euros) in French bonds in December, logging their biggest net selling since June 2015.

Early last year, Japanese investors gobbled up French bonds as alternatives to German bunds, whose yields have fallen into negative territory due to the European Central Bank’s stimulus.

For the whole of 2016, they bought 3.839 trillion yen (32 billion euros) of French bonds, their biggest net buying since 2012.

“We have widening of spreads for these countries. The fact [is] we expect interest rates to rise in the Eurozone. Long-term rates are very low, and we expect rates to rise more in Eurozone than in the US,” he added.

“For the US, we expect the yield curve to flatten in 2017, and that’s a kind of a traditional process when there’s a tightening of key rates. We expect [the] two-year yield to rise more than [the 10-year yield].”

Some European investors have been seeking safety in German debt over French and other Eurozone bonds, although the dollar’s broad rise has dulled the allure of gold, the traditional safe-haven asset in times of political and economic uncertainty.

Fund manager at Rasmala