- Japanese institutional managers are fueling the bond selloff just as the Federal Reserve pares its $9 trillion balance sheet, writes Bloomberg.
- The latest data from BMO Capital Markets show that the largest overseas holder of Treasuries has offloaded almost $60 billion over the past three months.
- Bloomberg says that though it may be a small change relative to Japan's $1.3 trillion stockpile, the divestment threatens to grow.
- The monetary path between the U.S. and Japan is diverging evermore, the yen is at 20-year lows, and market volatility stateside is breaking out.
- "It's a significant amount of selling and on par with what we saw in early 2017 from Japan," said Ben Jeffery, BMO's rates strategist.
- While an aggressive Fed tightening cycle to control inflation could result in multiple 50 basis-point hikes in the coming months, the Bank of Japan remains locked in the endless stimulus.
- While the selloff pushed the 10-year U.S. yield to 2.94% on Monday in Asia, buyers who pay to protect against fluctuations in the yen-dollar exchange rate see their effective yields dwindle to just 1.3%.
- Hedging costs have risen to 1.55 percentage points.
- "Hedge costs are the issue for investing in U.S. Treasuries," said Eiichiro Miura, the fixed-income department general manager at Nissay Asset Management Corp.
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