Japanese Investors’ sell Foreign Bond

Japanese Investors’ sell Foreign Bond

Sub: Eco

Sec: External sector

• Net Selling of Foreign Bonds:
  • Japanese investors were net sellers of foreign bonds for the second consecutive month in July.
• The primary reason was declining bond yields in the United States, driven by rising expectations of an imminent rate cut by the U.S. Federal Reserve aimed at supporting the slowing American economy.

What are bond yields?

• Bond yields are returns you get when you buy a bond from the secondary market.
• Bond yields and prices move in opposite fashion — when bond prices rise, yields fall, and vice versa.
• But when the returns are higher, you would want to drop equities and flock to bonds.

Reasons for fall in bond yields?

• The major factors affecting the yield is the monetary policy of the Reserve Bank of India, especially the course of interest rates, the fiscal position of the government and its borrowing programme, global markets, economy, and inflation.
• A fall in interest rates makes bond prices rise, and bond yields fall and vice-versa.
• Bond yields are inversely proportional to equity returns: when bond yields decline, equity markets tend to outperform, and when yields rise, equity market returns tend to falter
• Substantial Outflow of Investments:
  • According to Japan’s Ministry of Finance, Japanese investors offloaded 1.49 trillion yen ($10.12 billion) in long-term overseas bonds.
  • This followed a more significant net disposal of 3.35 trillion yen in the previous month.
  • In addition, they shed approximately 17 billion yen in short-term instruments.
• Shift in Investment towards Foreign Equities:
  • Despite the sell-off in bonds, domestic investors bought a net 724.2 billion yen in foreign equities in July.
  • This marked a reversal after two consecutive months of net selling.
• Barclays’ Analysis:
  • Barclays noted that the recent inflows into foreign equities continue the trend of significant purchases by investment trusts since the beginning of the year.
  • This trend is likely driven by new Nippon Individual Savings Account (NISA) flows and a cessation of substantial sales by trust accounts due to the Japanese yen’s appreciation and a stalled equity rally.
• Significant Purchases by Investment Trusts:
  • Investment trust management companies made a significant net purchase of 1.14 trillion yen in overseas equities, the largest monthly net purchase since January of this year.
• Contrasting Moves by Banks and Insurers:
  • Conversely, banks and life insurers were net sellers of overseas stocks, with banks selling 466.4 billion yen and life insurers selling 15.2 billion yen worth of overseas equities.