For years, Japanese investors have sought refuge in foreign bonds, effectively kicked out of their domestic bond market by the Bank of Japan's ownership of nearly half of it.[TOKYO] Japanese investors look set to switch some money from European bonds to US debt, hoping for capital gains after the US bond yield curve recently flashed signs of recession down the road.
"Concerns about a US recession are rising among investors we communicate with," said Hiroshi Yokotani, portfolio strategist at State Street Global Advisors."The US could slip into a recession or the Fed may try to stop it by cutting interest rates. Either way, bond yields should fall."Yokotani sees a shift to US bonds from European ones, as"investors are looking to capital gains as they expect yields to fall".
But the picture has changed as the spectre of a US recession added to growth concerns in Europe and Japan. In July, the BOJ is thought to have tried to reduce the side-effects on banks and other interest earners from its negative policy rates by expanding its bond yield target range.