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Goldman: Japanese Investor Flows Point To Cooling Foreign FI Demand

US TSYS

Goldman Sachs note that “going into the Japanese fiscal year-end, we expected a second year of overseas long-term debt sales by Japanese investors in March, contrary to the historically observed behaviour. While that break from the seasonal pattern has panned out, weekly Ministry of Finance data show net foreign debt sales have actually continued into the new fiscal year, leading to some of the largest cumulative outflows seen around the fiscal year in recent history. We think these outflows can extend further, as was the case in 2017, given the significantly less attractive economics of investing in foreign debt - particularly U.S. fixed income - and sharp increase in long-term JGB yields. We have been highlighting the decline in hedged yield differentials as a limiting factor for U.S. Tsy demand going forward, but even on an unhedged basis, continued yen weakening should reduce attractiveness. Moreover, the backdrop of elevated market volatility may keep these investors on the sidelines in the coming quarter.”

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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