(Bloomberg) — The riskiest part of Japan’s government bond market is having a moment in the sun in the middle of a global debt selloff.
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A total return gauge of Japanese debt due in 20 years or more has steadily climbed more than 3% this year, according to data compiled by Bloomberg. The equivalent for US Treasuries has fallen back to a 2% advance after a more than 8% beginning-of-the-year surge, while an index of European debt has seen an even greater reversal of fortunes and is now down over 1%.
Japanese so-called super-long bonds have managed to shake off the global angst about sticky inflation and higher-than-expected peak rates, thanks in part to comments from the likely new central bank head Kazuo Ueda. His confirmation hearing to lawmakers has eased concerns among many local investors that any imminent abandonment of the Bank of Japan’s yield-curve control policy lies ahead.
“Markets now appear to be convincing themselves that monetary policy ‘normalization’ will be difficult even under new BOJ leadership, which likely helps to explain why JGBs have held their ground so well despite such sharp surges in overseas interest rates,” said Koichi Sugisaki, a strategist at Morgan Stanley MUFG Securities Co. in Tokyo.
Ueda, an economist and a former BOJ board member, said last month that the benefits of stimulus outweigh its side effects. “It’s appropriate for monetary easing to be continued,” he said.
The BOJ meets this week for what will be the final meeting for current governor Haruhiko Kuroda. Some economists have flagged the outside risk of a surprise move, with Kuroda adjusting policy to smooth the transition process for Ueda.
Still, for longer-dated bonds, domestic investors are expected “to start out by rebuilding their exposure to duration in the super-long sector, which should be comparatively insensitive to any further YCC adjustments,” said Morgan Stanley MUFG’s Sugisaki.
–With assistance from Saburo Funabiki and Daisuke Sakai.
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