The latest Japanese MOF bond/stock flow data...>

JGBS: The latest Japanese MOF bond/stock flow data showed foreign buying of

Japanese bonds at the largest net purchase on record at (data going back to

2012) at Y1.359tln, jumping from Y500.2bln purchase last week. The same period

saw net selling of foreign bonds by Japanese to the tune of Y117.9bln. The large

position equates to foreign net buying of Japanese debt of Y2.696.4tln since the

start of July.

- Political uncertainty in the US, in particular the debt ceiling, is being

adduced as the main rationale for the purchases. The US yesterday passed a stop

gap bill that will temporarily support the government for 3 months up to

mid-December. MNI analysts note that they do not expect a definitive solution to

be hit before then, so expect more yield curve inversion as the debt limit draws

near again.

- Short dated USD/JPY basis swaps have dropped over the past month, indicating a

decreased demand for USD, and making JGB's more attractive from a USD investor

perspective. Basis swaps in the 6-Month to 2-Year maturities are an average of

5bp lower, while swaps from 5-Year onwards have risen over the past month.