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So India's central bank is buying gold, while Japanese banks are loading up on government bonds from a country with $4 trillion in net external debt at a 3.5% nominal yield... any bets on which country has the brighter future?
Japanese investors who lived through a decade of deflation and recessions say U.S. Treasuries are a bargain even with yields at about the lowest levels since at least the 1960s.
Japan bought a net $105 billion of U.S. government debt through August, exceeding China as the biggest foreign buyer and boosting its holdings to $731 billion, or more than 10 percent of the total market, Treasury Department data show. The 17 percent increase is the most since a 25 percent surge in 2004.
Mizuho Asset Management Co. and Mitsubishi UFJ Asset Management Co. are among the investors buying U.S. bonds because they see similarities between America’s response to the recession and their government’s efforts during the so-called lost decade of the 1990s. An index of Japanese debt securities compiled by Bank of America Corp.’s Merrill Lynch unit returned 90 percent in the 1990s, while the Nikkei 225 Stock Average fell as much as 67 percent between January 1990 and October 1998.
“The U.S. economy has faced a double whammy: the recession and credit contraction,” said Akira Takei, head of non-yen denominated bonds at Mizuho Asset in Tokyo, a unit of Japan’s second-largest bank. “The U.S. will face a triple whammy with deflation. That’s good for the Treasury market.”
Takei, who helps oversee the equivalent of $21 billion, bought Treasuries in July and predicts 10-year yields will decline to 2.75 percent by year-end. An investor who purchased $10 million of the notes would earn about $715,000 if yields dropped to Takei’s forecast, according to data compiled by Bloomberg.
Government securities have lost 2.8 percent since December, when 10-year yields fell to 2.04 percent, according to the Merrill Lynch U.S. Treasury Master Index data. Treasuries are on a pace to post their first annual losses since 1999 as the recovery in the global economy following the worst financial crisis since the Great Depression reduces the appeal of the debt as a haven.
Similar to Japan’s response to its real estate collapse in the 1990s, the U.S. is flooding the economy with cash only to see financial institutions sock the money away in bonds instead of making loans.
Japan bought a net $105 billion of U.S. government debt through August, exceeding China as the biggest foreign buyer and boosting its holdings to $731 billion, or more than 10 percent of the total market, Treasury Department data show. The 17 percent increase is the most since a 25 percent surge in 2004.
Mizuho Asset Management Co. and Mitsubishi UFJ Asset Management Co. are among the investors buying U.S. bonds because they see similarities between America’s response to the recession and their government’s efforts during the so-called lost decade of the 1990s. An index of Japanese debt securities compiled by Bank of America Corp.’s Merrill Lynch unit returned 90 percent in the 1990s, while the Nikkei 225 Stock Average fell as much as 67 percent between January 1990 and October 1998.
“The U.S. economy has faced a double whammy: the recession and credit contraction,” said Akira Takei, head of non-yen denominated bonds at Mizuho Asset in Tokyo, a unit of Japan’s second-largest bank. “The U.S. will face a triple whammy with deflation. That’s good for the Treasury market.”
Takei, who helps oversee the equivalent of $21 billion, bought Treasuries in July and predicts 10-year yields will decline to 2.75 percent by year-end. An investor who purchased $10 million of the notes would earn about $715,000 if yields dropped to Takei’s forecast, according to data compiled by Bloomberg.
Government securities have lost 2.8 percent since December, when 10-year yields fell to 2.04 percent, according to the Merrill Lynch U.S. Treasury Master Index data. Treasuries are on a pace to post their first annual losses since 1999 as the recovery in the global economy following the worst financial crisis since the Great Depression reduces the appeal of the debt as a haven.
Similar to Japan’s response to its real estate collapse in the 1990s, the U.S. is flooding the economy with cash only to see financial institutions sock the money away in bonds instead of making loans.
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