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JGBS: VIEW: HSBC "have been highlighting how the appeal of foreign bonds is
driving the relative steepening of the JGB curve. This can go further, in our
view, as Japanese domestic investors allocate away from super-long JGBs led, to
a large extent, by the GPIF. This is driven by the presence of steeper curves
overseas & low FX hedging costs. There are already signs of these flows
materialising with the MoF's weekly portfolio data showing that domestic
investors recorded four consecutive weeks of net purchases of foreign bonds in
June, totalling USD41.3bn. This is the longest buying streak in nearly a year &
is reminiscent of the monthly amounts purchased in '16. We think there is more
scope for public pension funds to accumulate foreign debt at the expense of JGBs
given yield enhancement ops & shifts in portfolio targets. A secondary
consideration for the shape of the JGB curve is the outlook for BoJ policy
settings. Similar to prior episodes, we expect the BoJ to be relatively relaxed
about super-long steepening."