GLOBAL - Japanese bond investors are shifting their sights to the US and Europe in order to enhance returns, according to research by consultants Greenwich Associates.
Total cash bond trading volume (ex-derivatives) in the yen bond market among the domestic institutional investors also declined 9% over the past year to ¥212trn.
However, among international investors based in Japan, total cash bond trading volume increased by 6% to US$621.1bn.
Japanese institutions - even regional banks who have traditional focused exclusively on the yen bond markets - are reaching beyond their borders for returns, said Greenwich Associates consultant Tim Sangston.
Total international fixed-income assets under management rose by 6% to US$418bn, with nearly 60% are in government bonds, 35% in investment-grade credit bonds, including agencies, and the remainder in asset- and mortgage-backed securities, down from 67% one year ago.
Total domestic fixed-income assets under management declined by roughly 15% over the past year to ¥206trn. Three-quarters of total domestic holdings are now in government securities, including agencies, while 20% is in investment-grade credit bonds and the remainder in asset- and mortgage-backed securities.
Government bond yields globally have offered limited return potential for some time, particularly in Japan, said Greenwich.
“As a result, Japanese investors who have long focused their fixed-income investments in G7 government securities have turned increasingly to corporate bonds and to some degree to credit products,” added Sangston.
We are seeing strong evidence that Japanese accounts are expanding outside the realm of their traditional products, investing to enhance the yield, or return, on their investments.
The proportion of domestic volume in G7 government bonds is now just 78%, down from about 85% one year ago, compared with 72% (down from 77%) among international investors.
Among domestic investors, the remaining volume comprises of investment-grade credit bonds (12%), agencies (7%), and asset- and mortgage-backed securities (1%). International fixed-income investors have turned more strongly to agency securities (18%), followed by mortgage-backed securities (4%), investment-grade credit bonds (3%), and asset-backed securities (2%).
Greenwich Associates conducted 407 interviews with senior investment professionals in Japan.
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