Japanese investors continued to net buy AUD fixed income products – RBC CM

Michael Turner, Fixed Income & Currency Strategist at RBC Capital Markets, notes that the Japanese investors continued to net buy A$ fixed income products in June.

Key Quotes

“The JPY131bn (A$1.7bn) of net purchases was the 11th month within the last 12 to see net inflows, confirming that Japanese investors have remained happy to accumulate A$ despite its ongoing decline against the JPY. The net buying also occurred after a ~20bps contraction of the 10y AU-US spread into the May RBA rate cut, suggesting relatively resilient demand.

Nonetheless, while the flows are consistent, they remain modest relative to previous episodes of A$ buying by Japanese investors. The last time AUD/JPY spent a while beneath 80 (2011), average purchases were running at just under $3bn/month. Our suspicion is that this reflects increasing use of synthetic A$ products, whereby investors are able to re-pack JGBs into A$ coupons. Hard data on the aggregate size of these transactions is difficult to obtain.”