Japan Funds Ramp Up Treasury Purchases Amid US Banking Turmoil

(Bloomberg) — Japanese investors bought a record amount of Treasuries in the first three months of the year as concern over the US banking sector damped bets on Federal Reserve rate hikes.

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Net purchases totaled ¥9.12 trillion ($68 billion) in the January-March period, the most in any quarter in the Asian nation’s balance-of-payments data going back to 2005. That’s about half the amount Japanese funds had sold in the preceding five quarters.

“Appetite for US Treasuries grew especially in mid-March when financial system risks emerged and speculation of the Fed’s prolonged interest-rate hike receded,” said Tsuyoshi Ueno, a senior economist at NLI Research Institute in Tokyo.

Treasury purchases by Japanese funds were more pronounced in February and March. The US two-year yield tumbled more than 150 basis points between March 8-24 as the collapse of Silicon Valley Bank and Signature Bank spurred bets that the Fed may pause its most aggressive tightening cycle since the 1980s.

“Japanese investors probably had only small positions on Treasuries after excessive selling before the first quarter, so it could have been easier for them to add back the securities,” Ueno said.

In addition to US bonds, Japanese investors also bought ¥373.8 billion worth of German sovereign bonds in March, the most since August 2020. Sovereign bonds refer to debt issued by governments, government agencies and local governments.

–With assistance from Hiroko Komiya.

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