UST: Japanese Investors Take Profit into Fiscal Half Year End; Buy in Oct?

Japanese investors hit Treasuries cash register – temporarily – into end-Sep fiscal half-year end

— Traders are wondering how do Japanese investors regard US Treasuries at this point. And it appears there may be a round of profit-taking (temporary) heading into the Japanese fiscal half-year-end, which comes up at the end of September. Those who had chunky profits from recent Treasuries market gains are wanting to hit the cash register, even if they later then jump back into the US govt bond market in October to buy Treasuries once again.

–There is another reason why some temporary profit-taking is going on: Some of the background causes for global uncertainty – Brexit, US/China trade war – appear to have somewhat receded, at least for this very moment, said observers. For example the do-or-die date for Brexit may not in fact be Oct. 31st, though the details and process are very confusing to sort out, they said.

— And US Pres. Trump and China leaders should be holding low-level meetings in Sept. on trade and higher level ones in October, thus that alleviates – for this moment – some of the global risk-off mood that caused investors to rush into Treasuries. Some concerns also on low UYS disinflation are subsiding too for the very near-term, too.

— The selling began late in the Sept. 2nd week in US Treasuries by varied types of Japanese accounts such as trust banks and mega-banks and life insurers, said sources, with some citing flurries of selling Monday night in Asia and Tuesday in NY and Tuesday night in Asia too.

— As noted, this profit-taking then should reverse in the next fiscal-half-year that begins Oct. 1st, when such accounts can jump back into US Treasuries as they see fit. The Japanese investors are now the largest group of US Treasuries holders, since they narrowly bypassed China in US Treasuries in the latest US Treasuries June TICS data. Japan now owns $1.1229 Trillion in Treasuries as of June 2019, and China is slightly behind there at $1.1125 Trillion, so June TICS show Japan is now top US Treasuries holder for first time since 2017 (Link:

— Other recent action from Japanese mega-banks included buying in the long end cash Treasuries on Aug 28th amid market improvement. “They are likely to come back in” Treasuries in October, “especially with attractive rate entry points,” i.e., higher yield, said one observer. “Hedging costs in the US are high vis-à-vis the US dollar, so there is a desire to be in the back end of the US Treasuries, but sometimes, they end up in the corporate bond investment grade space.”

Analyst: Sheila Mullan