Japanese investors tiptoe back to foreign bonds as yields rise on stimulus hopes

TOKYO: Japanese investors have stepped up buying in foreign bonds after hopes of a massive US stimulus boosted their yields, but many of them are still cautious, betting their bear trend could continue for a while.

Data from the Japanese Ministry of Finance showed on Monday Japanese investors bought 2.49 trillion yen ($23.6 billion) of foreign bonds last month, marking an eight straight month of their net buying.

A large part of it, however, has been driven by trust banks, which, analysts think, reflects flows from big public pension funds such as the Government Pension Investment Fund, rebalancing from foreign stocks.

Other types of investors like banks and insurers bought 1.15 trillion yen of foreign bonds, barely offsetting their net selling of 1.10 trillion yen in December.

"Bond yields are likely to rise further. In the US, more than one million people are getting vaccines per day now, which means, in a few months time, more than 100 million people will be vaccinated," said Arihiro Nagata, general manager of trading at Sumitomo Mitsui Bank.

"Talk of tapering in the Fed's stimulus could come up as an agenda by its April policy meeting," he said.

The 10-year US Treasuries yield rose to a 10-1/2-month high of 1.191% on Monday after soft US jobs data fanned expectations of large fiscal spending by the Biden administration.

The finance ministry's data also showed Japanese life insurers are staying away, extending their net selling to a seventh straight month in January, even as the yen-hedged yield on US 10-year Treasuries has risen above 30-year JGB yield for the first time since 2016.

"For life insurers, the current yield levels around 0.7%-0.8% are still not that attractive," said Masahiko Loo, portfolio manager at Alliance Bernstein.

In addition, some Japanese traders were also getting wary of taking risks ahead of their annual book-closing at the end of March.

"It doesn't look good if you buy bonds now and suffer losses just before the financial year end," Loo added.