Halister News

(Bloomberg) -- Bank of Japan’s policy to keep 10-year yield around zero continues to force Japanese investors into U.S. agency bonds such as those issued by Freddie Mac and Ginnie Mae, Bloomberg strategist Masaki Kondo writes.

• Net inflows into U.S. agency bonds from Japan totaled $90.0b in 2016 through end of October, already surpassing the annual record of $71.3b in 2010, according to data from Treasury Department
  • Japanese net purchases of U.S. govt agencies debt maintains a correlation of -0.92 with the Asian nation’s benchmark 10-year yield since March 2013, a month before BOJ started quantitative and qualitative easing
  • During this period, Japanese 10-yr yield fell 52bps to reach 0.04% by Dec. 30, 2016; click here for chart
• Japan was the largest foreign owner of U.S. agency bonds at the end of the third quarter, holding $222.1b of such debt
  • Asset-backed securities accounted for 88% of total foreign holdings of U.S. agency bonds at end-September
• NOTE: BOJ will continue with large-scale monetary easing until inflation stabilizes above 2%, Governor Kuroda reiterated on Dec. 26

• NOTE: Masaki Kondo is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice