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Biggest buyer of Treasuries outside U.S. is quietly selling billions
By Michael Mackenzie and Chikako Mogi
Monday, May 2, 2022
In times of Treasury turmoil, the biggest investor outside American soil has historically lent a helping hand. Not this time round.
Japanese institutional managers -- known for their legendary U.S. debt-buying sprees in recent decades -- are now fueling the great bond selloff just as the Federal Reserve pares its $9 trillion balance sheet.
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The latest data from BMO Capital Markets show the largest overseas holder of Treasuries has offloaded almost $60 billion over the past three months. While that may be small change relative to the Japan's $1.3 trillion stockpile, the divestment threatens to grow.
That's because the monetary path between the U.S. and the Asian nation is diverging even more, the yen is plumbing 20-year lows, and market volatility stateside is breaking out. All that is ramping up currency-hedging costs and completely offsetting the appeal of higher nominal U.S. yields, especially among large life insurers.
The upshot: Japanese accounts are contributing to the historic Treasury rout and may not return en masse until the benchmark 10-year yield trades firmly above 3%. In fact, near-zero-yielding bonds at home look ever-more appealing even as U.S. debt offers some of the highest rates in years. ...
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