Japanese Investors Less Keen on Foreign Bonds but Could Find Value in Europe

Dow Jones13:45

0545 GMT - Japanese investors are buying fewer foreign bonds, a trend reinforced by historically high Japanese government bond yields and government measures to promote domestic ownership, Societe Generale rates strategists say in a note. The high cost of hedging foreign bonds can be mitigated by preferring cross-currency bond hedges over FX hedges, they say. On this metric, Italian and French bonds, or BTPs and OATs, respectively, offer the best risk-adjusted pickup, while long-end eurozone government bonds are the most attractive in terms of outright yield and carry protection, the strategists say. "But with the risk of Bank of Japan [interest rate] hikes, even two- to five-year eurozone EGBs could find some appeal," the strategists say.

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