Following a significant sell-off earlier this month, the U.S. bond market has shown signs of recovery. Japanese investors have shifted back to being net buyers of overseas bonds, ending a six-week streak of net selling. This change occurred during the week ending April 19, as Japanese investors purchased 223.7 billion yen ($1.57 billion) worth of long-term foreign bonds, marking the first weekly net purchase since late February.
Previously, influenced by U.S. trade tariffs and economic policies under the Trump administration, Japanese investors joined a global retreat from dollar-denominated assets. This led to a consistent six-week period of net selling of overseas bonds. The recent sell-off in U.S. Treasuries was driven by hedge funds unwinding leveraged basis trades, overseas investors selling in response to tariff retaliation, and growing skepticism about the safe-haven status of U.S. assets, which pushed Treasury yields higher.
Japan remains the largest holder of U.S. Treasuries, with holdings amounting to approximately $1.13 trillion. Concurrently, driven by safe-haven demand and expectations that the Bank of Japan may delay interest rate hikes to support the economy, foreign investors have continued to increase their holdings in Japanese assets. Over the past three weeks, foreign capital inflows into the Japanese bond market totaled 11.95 trillion yen, with an additional 3.7 trillion yen flowing into the Japanese stock market.
