Japanese selling of foreign bonds hits record last week amid US jitters

Reuters

By Dominic Lau and Hideyuki Sano

TOKYO, Oct 10 (Reuters) - Japanese investors sold a recordamount of foreign bonds on a net basis last week, offloadingnearly $23 billion worth, amid concerns over whether U.S.lawmakers would reach a deal to raise the federal debt limit bymid-October and avoid a historic default.

Japanese investors sold a net 2.226 trillion yen ($22.9billion) in foreign bonds in the week through Oct. 5, Ministryof Finance data released on Thursday showed.

That was the largest amount since the ministry begancollecting the data in 2005, and ended three straight weeks ofnet buying totalling 1.77 trillion yen.

With pressure rising and no clear path forward for breakingtheir fiscal impasse, President Barack Obama launched a seriesof White House meetings with lawmakers on Wednesday to searchfor a way to end a government shutdown and raise the borrowinglimit by Oct. 17.

If a deal is not reached by the deadline, the U.S. coulddefault on its debt, an outcome that is unthinkable for theglobal economy.

"It's probable that some of the Japanese money got out ofTreasuries," said Tadashi Matsukawa, head of Japan fixed incomeat PineBridge Investments.

Japanese investors, including banks, pension funds and lifeinsurance companies, had 40 percent of their debt holdings inU.S.-denominated bonds as of the end of 2012. Analysts say alarge chunk of them are in U.S. Treasuries.

Yields on benchmark 10-year U.S. Treasuries hittheir highest closing level in two weeks on Wednesday at 2.661percent. Yields move inversely to prices.

By contrast, the 10-year Japanese government bond yield stood at 0.655 percent, near a five-month low of0.625 percent touched last week.

Tomoaki Shishido, a fixed-income analyst at NomuraSecurities, said the large selling by Japanese investors mighthave had more to do with booking Treasuries-related losses inthe first half of Japan's financial year, than with the U.S.government shutdown.

The 10-year U.S. Treasury yield rose 76.3 basis points fromthe end of March to Sept. 30.

"That probably reflected selling for the half-year bookclosing at the end of September. Japanese investors typically dosome operations for accounting purposes at the end of March andSeptember," Shishido said.

"I don't think there is panic selling among Japaneseinvestors. Some people are selling the bonds that have interestpayments during later October to mid-November but most areessentially stuck with what they've got," he added.

Foreign investors also turned net sellers in Japaneseequities, with 27.1 billion yen of outflows last week, afterfourth straight weeks of buying.

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