U.S. Markets closed

Biggest Australia Bond Rally Since 2014 Drives Japan Funds Away

Chikafumi Hodo
1 / 2

Biggest Australia Bond Rally Since 2014 Drives Japan Funds Away

(Bloomberg) -- Australia’s bond rally is driving the Japanese away.

Japanese funds, one of the biggest investors in Australia, sold a net 47.6 billion yen ($438 million) of Aussie sovereign debt in September, taking withdrawals for the year to 139.8 billion yen, according to latest data from Japan’s Ministry of Finance.

Yields in Australia have plunged to record lows this year as the central bank cut interest rates three times and fears of a global economic slowdown triggered a rally in debt worldwide. Japanese funds are on course to become net sellers of Australian debt for the first year since 2013.

“Japanese retail and institutional investors don’t treat Aussie bonds as high-yielding debt anymore,” said Tsuyoshi Ueno, senior economist at NLI Research Institute in Tokyo. “Individuals, in particular, used to like Aussie-denominated assets, but they’ve clearly lost interest amid wariness over the trade war and repeated monetary easing. They are finding Treasuries more appealing.”

UBS Group AG sees the Aussie 10-year yield hitting a record 0.5% next year as the U.S. and China fail to resolve their trade war. The yield has slumped 122 basis points this year, the most since 2014, to 1.10%. Similar-maturity Treasuries yield 1.77%

The asset value of Aussie-denominated mutual funds domiciled in Japan -- including both equity and bonds -- has fallen 15% from a year earlier to 1.76 trillion yen as of Oct. 31, according to data from Japan’s Investment Trusts Association. The value of U.S. dollar-linked funds rose to a record 18.1 trillion yen in October.

To contact the reporter on this story: Chikafumi Hodo in Tokyo at chodo@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Shikhar Balwani

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.