Japan’s overseas bond buying on rise

Dhaka,  Thu,  24 August 2017
Published : 12 Jul 2017, 14:49:23 | Updated : 12 Jul 2017, 15:41:47

Japan’s overseas bond buying on rise

To a Japanese bond investor, the world truly is flat. Not only in the sense that they can invest around the world at the click of a button, but that the choices available to them have become extremely compressed.

For instance, benchmark bond yields in the US, UK, and Germany are some distance apart, a reflection of their different economic trajectories and central bank policies, reports on global media Wednesday.

Yet, for a buyer in Japan, once the cost of including currency movements is calculated, a 10-year UK gilt offers a hedged annual yield of 0.8 per cent, according to Nomura, more than the 0.71 per cent available from US Treasuries.

Viewed from this angle, German Bunds represent a very slightly better option, with a hedged yield of 0.83 per cent.

The compression points to the importance of Japan’s capital to the rest of the world. A rich country with a large population of elderly savers, it was also the first to embrace quantitative easing-like policies in 2001. With interest rates close to zero for many years, a lot of money heads overseas.

Evidence of renewed buying this week came as the Bank of Japan signalled a commitment not to let benchmark Japanese yields rise above 0.1 per cent, meaning that domestic investors must continue to venture abroad to seek a better fixed-rate return.

- SZ
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