Good Lord, how much of this US debt do foreign holders own now, over 50%? Really piling up, just more interest payments heading overseas.
Reuters
UPDATE - Japanese snap up US bonds as Fed provokes deja vu
Thursday August 12, 5:10 am ET
By Kazunori Takada
TOKYO, Aug 12 (Reuters) - Japanese investors bought a record amount of foreign bonds last week, a move suggesting they suspect the U.S. Federal Reserve's interest rate increase this week could be a repeat of the Bank of Japan's ill-fated tightening in 2000.
Data released on Thursday showed Japanese investors bought a net 1.859 trillion yen ($16.8 billion) of foreign bonds in the week of Aug. 2-6, in the run-up to the Fed's widely expected decision to lift rates for the second time in four years.
For those investors, the Fed's action, which came despite signs of a slowdown in recent economic indicators, was reminiscent of the Japanese central bank's controversial move in August 2000 to end its zero interest rate policy, only to flip-flop in a little over six months and ease again.
"The BOJ's action in August 2000 was on investors' minds. It turned out to be a buy-factor for bonds," said Takuji Aida, senior economist at Merrill Lynch.
The weekly net purchase was the largest since the Finance Ministry started announcing weekly data in April 2001.
Though the yield on the cash benchmark 10-year Japanese government bonds shot up about 30 basis points to 1.990 percent following the BOJ rate decision in August 2000, it reversed course and fell as low as 1.020 percent by late March 2001.
After bottoming at a record low 0.430 percent last year, the yield now stands at around 1.645 percent.
Analysts said that although few Japanese investors expected U.S. growth to stall, as Japan's did back then, many were growing cautious about a possible slowdown following relatively weak U.S. data recently.
"There is strong concern among Japanese over the outlook," said Takashi Yamanaka, economist at UFJ Bank. "I think that is a factor behind the heavy buying of foreign bonds."
U.S. gross domestic product figures released on July 30 showed growth of three percent in the second quarter, down from 4.5 percent in the first.
Added to that, U.S. non-farm payrolls data released last Friday showed only 32,000 jobs were added in July, well short of expectations of 228,000.
"The jobs data basically confirms (Japanese investors') doubts about the economy," said Merrill's Aida.
But the Fed raised its key interest rate by 0.25 percentage point on Tuesday and retained its upbeat view on the economy.
The yield on the 10-year U.S. Treasury, which plunged about 20 basis points on Friday on the jobs data, has steadied around 4.25 percent, showing limited reaction to the expected rate rise.
The Fed said in a statement after the rate decision that the softness in the job market and faltering growth was likely due to high oil prices and that the "economy nevertheless appears poised to resume a stronger pace of expansion going forward".
On Thursday, crude oil stood near a record $45.04 a barrel hit two days earlier, buoyed after bomb threats by an anti-U.S. militia in Iraq highlighted insecurity about Middle East supply.
"Oil prices show no sign of peaking out," said UFJ's Yamanaka. "I am a bit suspicious as to how much the Fed actually means what it says." ($1=110.75 yen) |
