Japan Can’t Get Enough Treasuries
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Suddenly, the Japanese can’t get enough government securities.
Kokusai Asset Management Co., which runs the world’s second-biggest bond mutual fund, Daiwa Asset Management Co. and Fuji Investment Management Co. are increasing holdings of American government securities, expecting the 11-week rally in Treasuries to continue.
“There will be more money flowing to the U.S. because yields have peaked,” said Masataka Horii, who helps run Kokusai’s $46 billion Global Sovereign Open fund in Tokyo. Mr. Horii, 40, last month boosted Treasury investments to 27% of his assets from 25%. Global Sovereign is second in size only to Bill Gross’s Total Return Fund at Pacific Investment Management Co.
American bonds gained 2.7% including reinvested interest since June 30, the best performance so far in a quarter in more than a year, according to data compiled by Merrill Lynch & Co. The 4 7/8% Treasury note due in August 2016 yields 3.13 percentage points more than the 1.7% Japanese government bond that matures in September that year.
Investors in Japan are the biggest international owners of Treasuries, with 15% of publicly traded American government debt. They cut their holdings by about 10% since August 2004 to $635.3 billion as the Federal Reserve raised interest rates. A U.S. Treasury Department report today may show Japanese holdings stopped falling in July, the chief strategist at Nikko Citigroup Ltd. in Tokyo, Kazuhiko Sano, said.
The 10-year Treasury yield rose 2 basis points, or 0.02 percentage point, to 4.79% last week. The price of the 4 7/8 note due August 2016 fell 1/8, or $1.25 per $1,000 face amount, to 100 20/32.
The yield is almost triple the 1.66% on Japan’s 10-year bonds. Treasuries returned 1.4% so far this year, while Japanese bonds were little changed, according to Merrill.
Individuals in Japan hold $6.55 trillion in currency and deposits, more than the $4.91 trillion of publicly traded American debt. They are increasingly looking for alternatives because one-month certificates of deposit yield 0.275%. More of them are investing in mutual funds since the government allowed Japan Post, the world’s biggest financial institution, to offer alternatives to savings accounts at its branches.
Japanese investors are “yield driven” said Daniel Fuss, who oversees more than $23 billion in fixed income as vice chairman of Loomis Sayles & Co. in Boston. “There’s a lot of money in the market willing and able to be put to work.”