Business

JAPAN BOOSTING TREASURIES

Two-year Treasury notes continued to rally last week, pushing yields down to their lowest point in more than four years before easing to close at 1.52 percent.

While the credit crunch and fears of rising unemployment played a large and visible role in the rally, a seismic shift in the bond-trading strategy of Japanese institutions has been a silent hand in the Treasuries’ gain.

Japanese retail accounts such as insurers and possibly the Bank of Japan – the central bank – usually sell US Treasuries heading into their March 31 fiscal year end but this year have reversed course and are on an unprecedented buying spree, according to traders on Wall Street.

Japanese accounts held a combined $571.2 billion in US Treasuries in December 2007, the latest data available.

Such ongoing demand, first reported by Market News International, could be good news for the US consumer as the unexpected Japanese buying spree is helping keep interest rates low.

“They can’t afford to sell, given the weakness of the dollar, and the dollar is making it cheap to buy Treasuries,” said one head trader. “And there is a big US-Japanese interest rate differential. So, it’s a smart thing to hang onto Treasuries or add to the positions unless the dollar starts to get shellacked lower.”