SCIBCI: Japanese Continue to Snap Up "Overpriced" Bonds

Press Release ( - TORONTO - May 24, 2016 - Not that they have much choice, as ultra-long securities are the only bonds with positive yields following the staggering bond buy up from the nation’s central bank. They sold the securities at a yield of 0.321 percent, a record low average. James Coleman, VP Co-Head Portfolio Trading at Softbank CIBC International, told clients in an email yesterday, “Local investors are being forced to purchase bonds that are due in 15 years or more, as the Bank of Japan buys, bond rates remain the same.”


As Wednesday’s auction showed a record low yield, investors put in orders to purchase over three times the debt on the table representing the lowest levels for a year.

Central bank attempts to lure investors over to riskier ventures have thus been a moderate success as this move to 15 plus year bonds has shown, even if it means investors are more exposed to changes in interest rates.

Expensive Debt

Fisher is not the only one expressing his concern as financial house Goldman Sachs also commented that Japan’s debt seems expensive. Similar statements have been coming out of prominent Japanese fund offices. Indeed, foreign investment in Japan’s debt was cut by nearly $8 billion in the first quarter of 2016.

United States 30-year bonds outperformed the Japanese equivalent by 250 basis points, highlighting the overpriced debt of the Asian economic giant.

Recent Japanese auction reports still show the country is attracting large-scale investment. At their four auctions of ultra-long bonds in 2016 before last week, investors continued to bid for an average of over triple what the debt offered. Compare this to the U.S. treasury where the average is 2.28 times. The Bank of Japan carries about 30 percent of its nation’s debt which begs the question, what securities are there which the central bank has yet to buy?

Source : Softbank CIBC International

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