Record moneys suddenly pile into the material of debt crises.
The Institute of International Finance opined last week that ‘the ‘low for long’ interest rate outlook now looks more like ‘low forever’ – an outcome that has unleashed a powerful renewed search for yield.’
They’re all doing it.
Japanese investors, such as pension funds and insurance companies, are swarming into US Treasuries now more than ever.
According to the Ministry of Finance, for the week ended July 16, Japanese investors bought a net 1.718 trillion ($16.2 billion) of foreign ‘long-term’ debt (everything except ‘short-term’ debt). The week before, they’d bought a net 2.55 trillion, the highest on record. And according to the MOF, they were mostly buying US Treasuries.
For them it makes sense: the 10-year punishment yield of the Japanese Government Bond is a negative -0.22%. But the 10-year Treasury yield is still a positive 1.57%. And with the Bank of Japan being outspoken about wanting to crush the yen, the hapless Japanese have even more reason to seek refuge in US paper. We can’t blame them.
Europeans are doing the same thing, buying US Treasuries, but also US corporate bonds, and even US junk bonds.
This post was published at Wolf Street by Wolf Richter ‘ July 24, 2016.
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