JPY: One investor’s poison is another’s windfall – BBH

By FXStreet Research Team at BBH, suggests that the introduction of negative interest rates in Japan and the subsequent chance for yields has seen domestic investors move further out on the curve.

Key Quotes

“They have also stepped up their purchases of foreign bonds.

In three weeks (through March 4) since the negative deposit rate went into effect, Japanese investors bought JPY4.4 trillion of foreign bonds. This is the second most since at least 2001 (when Bloomberg’s time series began), trailing slightly behind the August 2010 flurry.

In the three weeks to the end of February, foreign investors bought the most Japanese bonds since last August. Japanese Securities Dealers reported foreign interest in the short-end of the Japanese coupon curve reached a decade high last year. Ministry of Finance data suggests foreign purchases of Japanese bonds in February was twice the pace seen in January.

What is going on? Why would foreign investors be attracted to the negative yields offered by Japanese government bonds?

Essentially, swapping dollars for yen provides a significant discount (cross currency basis swap) so that the total return is above comparable US Treasury yields for two-five year tenors. The two-year cross currency swap of …read more

Source:: FX Street