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BONDS: JGBs Offer Meaningful Pickup Vs. Peers When Japanese Hedge FX Exposure
While we have cautioned against the idea of swift and sizeable one-off round of Japanese repatriation flow linked to higher JGB yields, we have previously noted that Japanese real money accounts may be enticed to buy and hold JGBs (at least periodically) given the recent surge in yields and their longer investment horizon/alternative use of yield.
- The obvious caveat here is that Japanese PM Takiachi’s preferences for fiscal easing may become emboldened if she receives a stronger mandate at the upcoming snap elections. This may generate more of a wait and see stance amongst this investor cohort.
- The table and chart below underscore the scale of JGB yield pickups on offer vs. major global counterparts when FX-hedging costs from the perspective of a Japanese investor are accounted for.
Fig. 1: Long End JGB Yields Vs. Core Global FI FX-Hedged Yields From The Perspective Of A Japanese Investor
| FX-Hedged Yield (%) | Conventional Yield (%) | FX-Hedged Pickup Vs. 10-Year JGB Yields (%) |
U.S. 10-Year | 1.2007 | 4.2826 | -1.1583 |
Germany 10-Year | 1.4949 | 2.8860 | -0.8641 |
France 10-Year | 2.1634 | 3.5540 | -0.1956 |
Italy 10-Year | 2.1332 | 3.5250 | -0.2258 |
Spain 10-Year | 1.8876 | 3.2780 | -0.4714 |
UK 10-Year | 1.3515 | 4.4820 | -1.0075 |
Australia 10-Year | 1.6881 | 4.7820 | -0.6709 |
Japan 10-Year |
| 2.3590 |
|
| Japan 20-Year | 3.4660 | ||
| Japan 30-Year | 3.8760 | ||
| Japan 40-Year | 4.2290 |
Source: MNI - Market News/Bloomberg Finance L.P.
OAT: Block trade
OATH6 ~2.1k at 120.84.
US TSY FUTURES: BLOCK: Mar'26 5Y Buy
- +9,000 FVH6 108-20.75, buy through 108-20.5 post time offer at 0859:00ET, DV01 $388,100.
- The 5Y contract trades 108-21 last (-2.25)
