VIEW: HSBC "have been highlighting how the.....>

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."