Goldman Sachs: Muted Bond Flow Cyclical Around Japanese Fiscal Year-End

Goldman Sachs note that as “the Japanese fiscal year-end approaches, we consider the near-term outlook for foreign bond flows from Japanese investors amid significant rates market volatility. We have previously found Japanese banks tend to purchase foreign bonds into the end of March and sell in early- to mid-April, in theory to lock in profits at the start of their fiscal year. Last year, however, this cyclical pattern was much more muted, likely on account of the global bond sell-off and significant market volatility in Q1 which led Japanese banks to sell foreign holdings on net ahead of the year-end. A similar rates market backdrop, with a sharp selloff in the first two months of the calendar year, may again lead investors (mainly banks) to either refrain from adding positions or potentially even be net sellers before the fiscal year ends. While we don’t have much visibility into weekly investor-level bond flows, MoF data through February 25 show Japanese residents have already began reducing their exposure to foreign fixed income.”