Unlock Editor’s Digest Lock for Free
FT editor Roula Khalaf will select your favorite stories in this weekly newsletter.
Japanese investors offloaded with more than $2 billion in international bonds as Donald Trump’s tariffs shook the market earlier this month.
Private institutions, including banks and pension funds, sold $17.5 billion in long-standing foreign bonds a week, selling an additional $3.6 billion over the next seven days, according to preliminary data from the Japanese Ministry of Finance.
Japan holds 1.1 tonnes in the US Treasury across the public and private sector, the world’s largest international stockpile, so its transactions are closely monitored and considered as an agent for the purchase and sale of US government debt.
The recent sale is one of the biggest spills over the two-week period since records began in 2005.
The shift from international bonds was at the heart of a trembling after Trump’s “liberation day” tariff announcement sparked a stir in the global stock and bond markets on April 2.
The Wall Street S&P 500 index plummeted 12% on the four-day trading day after April 2, recovering to some extent after Trump paused most of his 90-day sudden “mutual” tariffs.
The US Treasury also maintained serious sales matches during market volatility, and since 2001, 10-year memo yields have skyrocketed in the week of April 11th.
The report from the Japanese Ministry of Finance does not provide details on which long-term bonds were traded by the country’s financial institutions.
However, Tomoaki Sisid, senior rate strategist at Bank of Japan Nomura, said “a significant proportion of (Japan) sales are probably US Treasury or US institutional bonds.” The latter refers to mortgage-backed securities guaranteed by the US government.
“Some sales of foreign bonds could be from rebalancing Japanese pension funds, or they could be banks or life insurance companies that reduce the risk of interest rates,” he added.
Sales by US asset managers and rewinding leverage transactions by US and international hedge funds may also contributed to the Treasury sale this month.
However, Japan’s surge in international bond sales is a sign of how Wall Street turbulence has spread across global markets.
According to some investors, the collapse of US stocks would have knocked the Japanese pension fund’s international debt and allocation of shares to unbalanced stocks.
As a result, they said the funds would have been under pressure to sell Treasury and other U.S. government-backed debts to bring the portfolio back to cooperation.
Analysts said some of the sales by Japanese private investors could also be the result of rewinding the hedging strategies adopted by Japanese banks.
In these so-called “carry trades,” investors borrow from the low-revenue market and bet on those with higher returns. Due to its relatively low yields, Japan is a common “finance” market for trade.
But Stephen Anglick, a Japanese economist at Moody’s Analysis, said that while the amount of the Ministry of Finance sold with Japanese funds is quite large, it is not large enough to fully explain the yields for the first two weeks of April.
“The headline numbers may seem thick, but from a bond market perspective, they have little ripple over them,” Angrick said.
