BLBG: Japan Lures Foreigners to Bonds With Buybacks: Chart of the Day
By Katrina Nicholas
March 26 (Bloomberg) -- Japanese bond-buying by foreigners rose to the highest since August 2008 last month amid expectations the Bank of Japan will repurchase more debt to stoke the economy, according to Credit Agricole CIB.
The CHART OF THE DAY shows net purchases of Japanese bonds, excluding short-dated treasury discount bills, by investors outside Japan starting in 2008. Purchases were 819 billion yen ($8.9 billion) in February, the most since August 2008, data compiled by the Japan Securities Dealers Association show. During the 17 months in between, foreigners sold more than they bought 76 percent of the time, with the biggest deficit in October 2008 after Lehman Brothers Holdings Inc. collapsed.
“Japanese debt is seen as a safe haven” as fiscal woes in Greece spark concern over credit risk elsewhere in Europe, Mitul Kotecha, head of global currency strategy at Credit Agricole CIB, said in a phone interview from Hong Kong. Also boosting the lure of Japan’s debt is an expectation the central bank will step up its repurchase program, known as “Rinban” operations, to “provide support to bond prices,” he said.
Japan’s central bank buys government bonds from banks and brokerages to add money to the financial system as a means of spurring lending and growth. Eleven straight months of deflation have squeezed company profit margins and discouraged spending, prompting the Bank of Japan last week to double a credit program to 20 trillion yen.
The central bank received bids on 10-year notes of 814.3 billion yen on March 24 while purchasing 250.2 billion yen worth, for a bid-to-cover ratio of 3.3, according to data compiled by Bloomberg. The same gauge of investor demand was 4.8 on March 10, the highest in a year.
With consumer prices dropping, “real yields are also looking more attractive,” Kotecha said. Ten-year government bond yields adjusted for consumer price changes show Japan’s real returns exceed those for U.S. Treasuries.
To contact the reporter on this story: Katrina Nicholas in Singapore at knicholas2@bloomberg.net
