Economy

Long-term Japanese bonds lure China

By Masaki Kondo and Shigeki Nozawa (China Daily)
Updated: 2011-05-13 10:58

SINGAPORE / TOKYO - China bought the most Japanese long-term bonds than it has in more than six years and sold stocks as the smaller nation's tsunami and record earthquake in March spurred expectations that interest rates would remain low.

China purchased a net 234.5 billion yen ($2.9 billion) in long-term bonds in March, the largest amount since January 2005, according to data released on Thursday by Japan's Ministry of Finance. China sold a net 100 million yen in Japanese stocks and a net 415.7 billion yen of short-term debt, the figures showed.

"It's possible China expects a low-rate policy after Japan's quake and is buying longer-maturity debt for capital gains," said Makoto Noji, a senior bond and currency strategist in Tokyo at SMBC Nikko Securities Inc, one of the 24 primary dealers obliged to bid at government debt sales.

"This seems to be part of China's move to diversify foreign reserves."

Related readings:  BOC loses out in bonds sales  US to continue bond-buying program as scheduled  Japan earmarks 1st $50b for post-quake rebuild  Sinopec's biggest bonds sale as rates rise

In April, international buyers invested the most in Japanese bonds in more than two years as the yen strengthened against the dollar by 2.4 percent, the biggest monthly gain since December. Overseas money managers purchased a net 1.62 trillion yen of Japan's long-term debt, the most since August 2008, and acquired a net 915.4 billion yen in short-term securities, according to separate Finance Ministry data released on Thursday.

The yen has appreciated 5 percent since reaching a six- month low of 85.53 a dollar on April 6.

"If investors want to take a position on the yen, they can simply buy shorter-term debt," said Tadashi Matsukawa, head of fixed income in Tokyo at PineBridge Investments Japan Co, which manages about $1.8 billion in bonds.

"Considering the net purchase of longer-term bonds, it's natural to think investors expect a decline in yields."

The benchmark 10-year yield fell to as low as 1.115 percent on Thursday, the least since Dec 30, at Japan Bond Trading Co, the nation's largest interdealer debt broker.

Japanese government debt due in 10 years and longer has handed investors a 2 percent gain since the March 11 earthquake, versus a 1 percent advance for the broad market, based on Bank of America Merrill Lynch data. The Nikkei 225 Stock Average has fallen 4.6 percent over the same period.

Bloomberg News