Japanese investors sell foreign bonds for fifth straight week, eye home market

Japanese investors ​sold foreign bonds for a fifth straight week, their ​longest selling streak in four years, marking ‌the ​latest sign of a potential shift in allocation strategy as rising yields at home spur buying in Japanese government bonds.

The surge in the benchmark Japanese 10-year bond yield , ‌up over 80 basis points this year, is starting to tease capital home, although recent safe-haven buying has pulled yields away from the three-decade high it hit in October. Japanese investors sold a net 161.6 billion yen ($1.02 billion) of foreign long-term bonds ‌through October 17, the smallest quantum in the streak, alongside 156.9 billion yen of short-term bills, Japan's Ministry of ‌Finance data showed.

The pace of selling slowed as US Treasury yields eased from multi-decade highs, as investors sought safety in bonds from the ruction in the stock market over AI worries. The benchmark 10-year US yield retreated by roughly 27 basis points from a 24-1/2-year high of 5.3645% ⁠hit earlier ​this month.

Meanwhile, the 10-year French ⁠government bond yield climbed to a 24-year high of 5.022% on Wednesday amid concerns over widespread protests in France. The latest sales brought Japanese investors' ⁠total net disposals of foreign long-term bonds over the five weeks to about 3.43 trillion yen, taking year-to-date net sales to 5.18 trillion ​yen, the largest for the comparable period since 2022.

Domestic Japanese banks have led this year's selling, while life ⁠insurers have signalled plans to maintain or increase their domestic bond purchases in the second half of the fiscal year. Investor focus this week ⁠will ​be on the investment plans from life insurers, who manage about $2.5 trillion in assets, about a quarter of which is held overseas, according to the Life Insurance Association of Japan.

In overseas equity markets, Japanese investors made net purchases of ⁠128.3 billion yen in foreign stocks, marking their fifth weekly net buying in the past six weeks. Meanwhile, foreign investors ⁠were net buyers of Japanese long-term ⁠bonds for a third consecutive week, purchasing a net 1.45 trillion yen during the week.

However, they sold 2.24 trillion yen of short-term bills, the largest weekly disposal in three ‌weeks. ($1 = 157.9100 yen)