21 Jan 2015
JGB selling by pension funds accelerates, might support JPY weakness – Nomura
FXStreet (Barcelona) - The Research Team at Nomura expects the accelerating JGB selling by pension funds to generate substantial JPY selling this year, thereby limiting the downside risk for USD/JPY and aiding further JPY weakness.
Key Quotes
“Trust banks, which manage pension funds' money, sold JGBs aggressively in December. According to the JSDA, they sold JPY1576bn ($13.2bn) of JGBs, the most in a month on record. Selling was broadly from medium-term to super-long JGBs, with super-long JGBs sold the most aggressively (JPY831bn, or $7.0bn).”
“Historically, net selling of JGBs by pension funds has been rare, but net selling continued for a third consecutive month. The GPIF lowered its target share for domestic bonds in October and we estimate its domestic bond share remains above the upper range of its new target.”
“We expect pension funds to continue to shift away from JGBs at historically high levels.”
“Aggressive JGB selling by pension funds in December suggests public pension funds' portfolio shift is proceeding relatively quickly. If the portfolio shift is prolonged, its impact on the market will be diminished. However, large JGB selling by pension funds shows that a large part of the rebalancing is likely to occur this year, in our view, generating substantial JPY selling this year.”
“We judge the public pension fund portfolio shift to limit downside risk to USD/JPY, supporting the gradual JPY weakness trend.”
Key Quotes
“Trust banks, which manage pension funds' money, sold JGBs aggressively in December. According to the JSDA, they sold JPY1576bn ($13.2bn) of JGBs, the most in a month on record. Selling was broadly from medium-term to super-long JGBs, with super-long JGBs sold the most aggressively (JPY831bn, or $7.0bn).”
“Historically, net selling of JGBs by pension funds has been rare, but net selling continued for a third consecutive month. The GPIF lowered its target share for domestic bonds in October and we estimate its domestic bond share remains above the upper range of its new target.”
“We expect pension funds to continue to shift away from JGBs at historically high levels.”
“Aggressive JGB selling by pension funds in December suggests public pension funds' portfolio shift is proceeding relatively quickly. If the portfolio shift is prolonged, its impact on the market will be diminished. However, large JGB selling by pension funds shows that a large part of the rebalancing is likely to occur this year, in our view, generating substantial JPY selling this year.”
“We judge the public pension fund portfolio shift to limit downside risk to USD/JPY, supporting the gradual JPY weakness trend.”