Fed Nemesis & Mysterious Treasury Bond Buyer Exposed

The monotonous drone from The Eccles Building continues to pontificate that bond bulls are fools but stock buyers are the smart ones for the miracle hockey-stick of Keynesian dreams is just around the corner and rate-hikes right along with it. Three decades of factual dismissal of this bullshit propaganda are of course proving that line of reasoning simply false and while Rosengren, Bullard, et al. bloviate that 'investors' should be selling bonds, it is shockingly ironic that their bond-buying nemesis is Mrs. Watanabe in the land of failed Keynesian policy piling into Treasuries at a record pace since The BoJ went NIRP.

As UBS Rate strategists detail, since the BoJ launched its negative interest rate policy, Japanese investors have been significant net buyers of foreign assets, mainly DM government bonds. Weekly flow data suggests that this trend has continued beyond the turn of the Japanese fiscal year, albeit at a slightly slower pace (since April, Japan net purchases of overseas bonds amount to ¥2tn vs. ¥4.3tn in Mar-16 and ¥3.1tn in Feb-16). Today’s data of overseas purchases by destination for March highlights which markets have benefitted so far.

DM: Record appetite for US Treasuries in March; dwarfed other markets

Treasuries normally make up most of Japanese investors' foreign bond purchases. This was certainly true in March, with the ¥4.8tn of net purchases of USTs (largest since at least 2005) accounting for 87% of the overall net flow

And that Fed-frustrating bid for bonds is not about to stop...

Investment plans point to continued strong demand; should weigh on yields

Our take on Japanese life insurers’ and asset managers’ investment plans for FY16-17 is that a vast majority plans to boost their foreign bond holdings further, often at the expense of JGBs.


While most still seem to favour FX-hedging overseas bonds, some look to also up unhedged purchases. However, others appear sceptical of the prospects for a yen turnaround, and will only consider altering hedging ratios if they grow more confident that the JPY will weaken. We remain of the view that liquid and highly rated markets offering an attractive FX-hedged yield pickup vs. JGBs, like USTs and OATs, should be key beneficiaries.


So the next time Eric Rosengren says that the bond market is way too pessimistic about growth or how awesome The Fed is - tell him to blame his Keynesian frontrunning fools in Japan for "reaching for yield" into USTs and dumping JGBs - if Eric really wants to saee what happens to his bond market, maybe try NIRP - just as Yellen said was on the table tonight.