Sumitomo Mitsui DS Asset swaps French debt for German, yen bonds
Sumitomo Mitsui DS Asset Management said it recently sold some French government bonds in favor of German and Japanese debt. The firm described the decision to buy German bonds as a "flight-to-quality move."
Purchase of German bonds was a flight-to-quality move, portfolio manager says Speculation has mounted that Japanese investors will begin to repatriate assets Japanese PM appears to be improving communication with markets By Junko Fujita TOKYO, Oct 6 (Reuters) — Sumitomo Mitsui DS Asset Management said on Tuesday that it recently sold some French government bonds in favour of German and Japanese debt, describing the decision to buy German bonds as a "flight-to-quality move".
"We can earn enough carry by holding safe-haven German bonds, while Japanese government bonds with maturities between 2 and 3 years are attractive as their yields have priced in the Bank of Japan's neutral rate," Shinji Kunibe, lead portfolio manager of the firm's global fixed income group, told Reuters in an interview. Kunibe did not say how much the sale of French bonds was worth or specify its exact timing. Sumitomo Mitsui DS Asset Management's sale of French bonds was first A selloff in French debt gathered pace in September, resulting in the biggest quarterly jump in 10-year yields since 1987.
While energy price-driven inflation and central bank tightening have weighed on bond markets around the world, fears have mounted about the French government's ability to improve its finances ahead of the 2027 presidential election. 99% on Friday, a level not seen since the 2000s, while its spread with German debt hit more than 158 basis points, the highest level since late 2011. Better Communication From Takaichi JGB yields have been on the rise since the election of fiscally dovish Prime Minister Sanae Takaichi last year and recently shot to multi-decade highs.
Even so, Japan is much better positioned than France, according to Kunibe, who said he felt Takaichi's communication with markets is improving, citing her speech on Monday in which she pledged to "control" bond issuance and act swiftly against market turbulence. "The French government has made little effort to communicate with the market, with lingering uncertainties over the fate of its 2027 budget bill," he added. 43% last week. 25% last month.
But Kunibe said he was cautious about JGBs with maturities of 10 years or more as their yields may track rises in global bonds. He added that it was unclear if the government would be able to end a planned cut to the consumption tax in two years that has been a key trigger for the selloff in JGBs. "The market wants a risk premium for that on bond yields," said Kunibe. With yen yields climbing and volatility rising in overseas markets, speculation has been growing that more Japanese institutional investors will bring home their money.
After Germany and China, Japan is the world's third-biggest creditor nation so any reversal of fund flows would have major consequences for debt markets. It may not be a rush for the exits, however, particularly among Japan's conservative life insurance companies. One senior investment executive at a major life insurer who declined to be identified said the firm had unrealised losses on French bonds, but it was maintaining a buy-and-hold stance.
"It's not as though we're scrambling to make moves right now," the executive said, adding that the firm did not believe that there had been any increase in the risk of bond redemption being compromised — such as through an exit from the euro or a default. com)