Record high Japanese yields trigger bets on repatriation

{"text":[[{"start":10.9,"text":"Investment firms are positioning for a potential repatriation of Japanese investor cash out of US Treasuries and back into Japanese government bonds, as domestic yields surge to record highs."}],[{"start":23.25,"text":"The yield on the benchmark 10-year JGB rose to 2.73 per cent during trading on Friday — its highest level since May 1997 — with investors increasingly convinced that rising inflation will prompt the Bank of Japan to raise its policy interest rate by a quarter point to 1 per cent in June."}],[{"start":42.65,"text":"The yield on the 30-year JGB hit 4 per cent for the first time since the bond was first issued in 1999. The yields on 5-year and 20-year bonds both hit record highs earlier this week. Yields move inversely to prices. "}],[{"start":59.9,"text":"Finance minister Satsuki Katayama told reporters on Friday that yields on government debt were rising across the world’s biggest bond markets. “These developments are interacting with one another, and that is creating a compounding effect,” she said."}],[{"start":74.65,"text":"Analysts predict Japanese yields will continue to rise. The government of Prime Minister Sanae Takaichi, who won a landslide election victory in February on promises of higher government spending and relief from inflation, is already heavily subsidising petrol prices. "}],[{"start":92.80000000000001,"text":"Economists increasingly warn that her government will be forced to prepare a supplementary budget later this year, putting further downward pressure on JGB prices."}],[{"start":null,"text":"

"}],[{"start":102.85000000000001,"text":"Decades of low interest rates in Japan have pushed the country’s big investors to seek returns abroad. Japanese investors hold roughly $1tn of US Treasury debt — making them by far the biggest group of foreign holders. "}],[{"start":116.65,"text":"But the historic ructions in the JGB market are causing some asset managers to place significant bets that Japanese cash abroad will be redomiciled."}],[{"start":127.25,"text":"The BoJ raised its policy interest rate to a three-decade high of 0.75 per cent in December, signalling an end to its longstanding easy monetary policy. Cash has since begun to trickle back home, with investors betting that the trend will accelerate. "}],[{"start":142.9,"text":"“The new money that’s being put to work won’t be put to work overseas. It won’t be going into US corporate bonds. It won’t be going into US Treasuries. It will be going into those domestic allocations,” said Mark Dowding, chief investment officer at British asset manager BlueBay, which launched its first Japanese bond fund in March. "}],[{"start":163,"text":"Investors poured roughly $700mn into Japanese sovereign bond funds in March, according to data from fund monitor EPFR, the biggest monthly inflows into the category on record. Inflows in April were $86mn, more in line with recent monthly moves."}],[{"start":null,"text":""}],[{"start":181.7,"text":"“Pressure is building — long-end domestic yields are rising. And the institutional framework is now ‘please can you bring this money home’. We think yen strength will happen slowly, then quickly,” said Matt Smith, a fund manager at Ruffer. "}],[{"start":194.89999999999998,"text":"“We’re long yen. It is one of our key hedges. In a moment of market turmoil, especially if the turmoil is US-credit-market-centric, you will see the yen strengthen as Japanese investors bring capital home,” said Smith. "}],[{"start":208.59999999999997,"text":"Analysts said that, for now, Japanese investors have not taken the bait of rising JGB yields. JGB markets are still volatile, investors continue to fret over the Takaichi government’s expansionist policies, and the direction of the market is for a continued rise in yields as prices fall further. Analysts see a 3 per cent yield on the 10-year JGB as a realistic target for later this year."}],[{"start":234.74999999999997,"text":"Previously, under the BoJ’s unorthodox quantitative easing and yield curve control policies, the central bank was a huge buyer of JGBs. As it pulls away from that and the market returns to the dynamic of more traditional supply and demand pressures, yields have been volatile. "}],[{"start":250.84999999999997,"text":"Expectations are now high that prolonged inflation above the BoJ’s target of 2 per cent, with additional price pressures caused by the war in Iran, will push the central bank to raise its policy rate to 1 per cent at its June meeting. "}],[{"start":264.74999999999994,"text":"Abbas Keshvani, Asia macro strategist at RBC Capital Markets, said Japanese investors had been net buyers of $50bn worth of foreign bonds over the past 12 months, despite higher JGB yields “offering ostensibly better compensation to investors”. "}],[{"start":282.6499999999999,"text":"The issue, said Keshvani, is that Takaichi has made it clear that she favours more fiscal spending, so even though the BoJ is pulling back as a buyer of JGBs, the amount of new issuance will probably not fall significantly. "}],[{"start":296.5499999999999,"text":"“You have supply and demand dynamics favouring higher yields,” said Keshvani. “As an investor, if you know that the yields are going to keep going higher, it is very difficult to want to buy these assets right now.”"}],[{"start":315.0999999999999,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1778995797_5058.mp3"}