Stay on the free updates
Simply register in Sovereign bonds Myft Digest – It is delivered directly to your inbox.
Japanese investors sold government debts in the euro area as soon as possible in more than a decade, with analysts warning that the move by one of the primary bond holders in the mass may lead to sharp sales in the market.
The net sales of Japanese investors rose to 41 billion euros in the six months until November – the latest numbers to be published – according to data from the Japanese Ministry of Finance and Japan Bank, which was collected by Goldman Sachs.
Analysts say that the probability of high bond returns at home and political turmoil in Europe – including the collapse of the ruling coalition in Germany, which leads to elections next month, and the unrest in France that were operating under the emergency budget law – may accelerate sales. . The French bonds were the most sold during this period worth 26 billion euros.
Sales add more pressure on the European debt -burgundy governments that are already facing a leap in borrowing costs, and highlights how this happens High Japanese interest rates After years of staying in the negative area, investors began to reshape financial markets around the world.
Alan Pocobza, head of allocation of global assets at Societe General, said that the return of Japanese investors to their homes is a “change of the rules of the game for Japan and global markets.”
Although Japanese investors have been sellers of the eurozone bonds over the past few years, the pace has accelerated in recent months.
Thomas Villadic, an economist at the asset management company T Ro Price, said that Japanese investment flows were “a stable source of demand for government bonds (European) for a long time.” But the markets now “enter an afternoon from the vigilance of bonds” where “fast and violent sale” can often occur.
Gareth Hill, director of the bond fund at Royal London Asset Management Company, said that “the scenario has long been a source of concern for European government bond holders, given the historically high possessions (between) Japanese investors” and could press the market.
In addition, the high costs of hedging against fluctuations in the value of the yen made external debt increasingly inappropriate. Despite its decrease in the peak of 2022, when the hedge costs are calculated, the Italian government bonds return for 10 years for Japanese investors slightly more than 1 percent, which is almost equivalent to the same Japanese return for 10 years, according to Noriyatu Tanji. , The largest bond strategy at Mizuho Securities in Tokyo. He referred to regional banks in Japan as among the main sellers of European debt.
“Japanese investors should ask themselves strongly to what extent they should keep foreign bonds,” said Andres Sanchez with a pair, head of global bonds in Pecittit, the largest asset management company in Europe.
Norenchukin – one of the largest investment institutions in Japan – said last year that it plans to empty more than 10 trillion yen from foreign bonds in this fiscal year. In November, a loss of about three billion dollars in the second quarter was recorded after it achieved losses in its large possession of foreign government bonds.
Analysts said that the decline in Japanese investors imposes escalating pressure on the returns of bonds that have already increased since the European Central Bank began reducing its public budget after a huge emergency program to buy bonds during the Korona virus.
France – which has one of the deepest bond markets in Europe and has been historically preferred by Japanese investors because of its additional return on standard German debt – has great Japanese flows abroad in recent months.
From June to November, and with the exacerbation of the political crisis that led to the fall of the Michelle government, the total flow of Japanese funds abroad amounted to 26 billion euros, compared to sales of only 4 billion euros in the same period in the previous year.
“There is no doubt that the base of buyers for France has changed,” said Shimos Mac Goren, head of global interest rates at JP Morgan Asset Management.
Over the past twenty years, Japanese investors have become an essential investor in many bond markets, making very low returns inside foreign investments more attractive, including for big investors such as pension funds that need to buy safe sovereign debts.
The total bias of Japanese institutional investors from foreign bonds reached $ 3 trillion at its peak in late 2020, according to the International Monetary Fund.
However, with the start of Japanese investors to search for returns at home, their net purchases from global debt bonds have decreased to only 15 billion dollars over the past five years – which is a far amount far from the similar purchases they have in Japan, which amounted to 500 Almost one billion dollars. The past five years, according to Alex Etra accounts, the total strategic expert in Exante.
“While Japanese bonds were not at all attractive to local investors in the past, they have become more attractive now,” said Goren from JP Morgan. “This is a structural change.”
