###POV. JAPANESE FY-END COULD AID A....>

US TSY FLOWS: ###POV. JAPANESE FY-END COULD AID A REDIRECTION TO EGBS

- Japanese FY-end is just over 2 weeks away and potentially leads to bond

repatriation and extra market volatility. Attention will be on USTs because

Japanese bond selling tends to increase if positions are losers, already

Japanese investors sold USTs in each month from Oct17-Jan18.

- Flat Treasury curve pushed up FX hedging costs for UST position, encouraging

unhedged UST buying. Unfortunately, the weak USD and higher UST yields this past

year combined to hurt unhedged USTs. Recent Mnuchin and Trump comments on the

weak dollar being good for trade may help the decision to quit USTs in late

March. Painful US hedging costs should lead Japanese asset managers to redirect

their overseas investment. Europe is an obvious destination and FY-end may see a

concentration of the redirection flow. Japanese have favoured OATs, Bunds and

some DSLs. They have not bought much periphery but Spain may just be entering

the frame.

- Note that weekly MoF data have shown large sales of overseas bonds in each of

the past three FY ends.