Gulf of Mexico Oil Spill Blog Japan U.S. Treasuries Bond Purchases

Japan U.S. Treasuries Bond Purchases

U.S. Treasuries

U.S. Treasuries

TREASURIES-Japan disaster may not dilute Treasuries purchases

Japan exporters may maintain U.S. Treasuries purchases

By Chris Reese

NEW YORK, March 14 (Reuters) – U.S. Treasury debt prices may not be undermined by reduced purchases from Japan in the aftermath of a devastating earthquake and tsunami that killed at least 10,000 people.

Most Treasury debt prices rose on Monday as investors looked for lower-risk assets while trying to gauge the eventual impact of the Japanese disaster and watching turmoil in the Middle East and North Africa. Also, uncertainty remained over a debt crisis in the euro zone.

Japan has been a huge purchaser of Treasuries in recent years, buying about $260 billion of U.S. government debt in the six years through 2010, with two-thirds of those purchases coming last year alone, according to portfolio flow figures from Japan’s Ministry of Finance.

Some analysts argue that the disaster late last week does not necessarily mean Japan, which is the second largest holder of U.S. Treasuries behind China, will no longer be a continued purchaser of U.S. debt.

“They are buyers of Treasuries because they export to us, then they have the dollars — if they don’t want to roll those dollars into yen then they do something with their dollars and that is generally buy Treasuries,” said Lou Brien, market strategist at DRW Trading Group in Chicago.

“It is not necessarily a Bank of Japan decision or any official decision, but it is the exporters that would be the buyers of Treasuries. To the degree that the exporting slows down and their flow of dollars slows down then they will obviously buy fewer (Treasuries) but I don’t necessarily think that is going to have any material impact on bond prices,” Brien said.

Benchmark 10-year notes US10YT=RR were trading 16/32 higher in price to yield 3.34 percent, down from 3.40 percent late Friday, as investors also kept their attention on unrest in the Middle East and North Africa, and any developments on euro zone nations’ debt.

“We have an uncertainty bid going on in Treasuries, they are a place to hide out until things become a little more clear,” Brien said.

Longer-dated bonds were not sharing quite the bid as the rest of the market, with some speculation Japan may sell some of its hefty U.S. debt holdings to pay for rebuilding after the earthquake and tsunami.

“Except for the longer end, where where is speculation that insurance companies are selling 30-years, Treasuries are well bid today — Japanese insurers may perhaps be selling Treasuries to pay claims,” said David Coard, head of fixed income sales and trading at The Williams Capital Group in New York.

“There are many balls that are being juggled in the markets — we still have the North Africa and Middle East region and all of its impact on oil prices and there is still the European sovereign debt crisis,” Coard said.

Thirty-year Treasury bonds US30YT=RR were trading 2/32 higher in price to yield 4.55 percent.

Japanese companies and insurers were cited as dumping foreign assets and bringing cash back to Japan after the 1995 Kobe earthquake, one factor behind the yen’s surge to a record high against the dollar that year.

While foreign affairs dominated investor attentions on Monday, some were looking ahead to Tuesday’s Federal Reserve policy meeting and what it held for the recent largest purchaser of Treasuries — the central bank itself.

“The Fed is expected to keep the fed funds rate at its current zero to 0.25 percent and they are likely to stay diligent as it pertains to QE2, but there could be more than one dissenter,” said Kevin Giddis, managing director of fixed income at Morgan Keegan in Memphis, Tennessee. “The (central bank) appears to be not in full agreement as to how long the Fed needs to hang around with cash falling out of its pockets.”

The Fed in November announced a new program of government securities purchases, dubbed QE2, intended to bolster the economy. Under the program, the central bank intends to buy about $600 billion of Treasuries and Treasury inflation-protected securities through the middle of 2011.

The Fed has purchased about $487 billion of Treasuries and TIPS since August. On Monday it was buying Treasuries maturing May 2018 through February 2021. (Editing by Chizu Nomiyama)

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