HALISTER1: Short 30Y JGBs vs USTs, OATs on Japanese Outflows: UniCredit

Short 30Y JGBs vs USTs, OATs on Japanese Outflows: UniCredit

(Bloomberg) -- Since the BOJ rate cut, outflows have been observed in Japan which, if continued, may put buying pressure on other markets, UniCredit strategist Luca Cazzulani writes in client note.
  • History suggests France and U.S. are the most likely beneficiaries
  • Entry levels are attractive given very wide yield spread
  • Negative carry is very limited on a short-term horizon
  • Both trades may benefit from Japanese investors’ demand for diversification and hunt for yield
  • Data from JSDA indicate that domestic insurance companies and pension funds were buyers in the 30Y tenor
  • With the current level of Japanese yields extremely low, the trend of portfolio diversification toward foreign assets observed in recent years is likely to gain momentum
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Luca Cazzulani (UniCredit SpA)

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