Japanese investors halted their rapacious buying of US government debt in December.

Japan’s army of domestic investors, long known for a tendency to move global markets by escaping the low-interest rate environment at home to chase income overseas, were in pullback mode on US government debt at the end of last year.

Net sales of US Treasuries totaled Y2.4tn in December, figures from Japan’s Ministry of Finance on Wednesday showed, the highest level of monthly net selling since May 2013.

French government debt was the second least popular country among Japanese investors with Y236bn in net sales for December.

However, Japanese investors were net buyers of many other developed countries’ debt in December. Germany, Australia, the UK, Sweden, Denmark and the Netherlands all saw net inflows from Japan. Canada, Italy and Switzerland were the only other major countries to see net outflows.

US 10-year government bond yields rose sharply after Donald Trump’s election victory in November, reflecting a drop in prices. President Trump’s plans to ramp up infrastructure spending raised the prospect of higher inflation, which reduces the relative value of a bond’s returns, driving down prices.

However, Treasuries have clawed back some of their losses in recent weeks as confidence in the so-called “Trump trade” has faded. Yields on 10-year debt, which move inversely to prices, have fallen 60 basis points since the start of the year to 2.38 per cent.

The move by Japanese investors also coincides with the US Federal Reserve’s decision to hike interest rates in December, further sending prices of government debt down.

French government debt has also fallen in recent weeks and yields on 10-year notes hit a four-year high on Wednesday amid jitters over the outcome of the French presidential election, which could see far-right leader Marine Le Pen elected.

Still, Japanese pension funds and insurance companies bought more foreign bonds overall in 2016 than they had for a decade, according to the MoF, with €28bn in net purchases of French bonds alone.

From analysts at UBS:

Last month we pointed out a number of factors that support a rebound in Japanese investor demand for overseas debt (e.g., calmer market conditions, higher overseas FX-hedged yields, and supportive seasonality in Q1). However, so far there is little evidence of any bounce back.

Still, the potential for reallocation flows should not be overlooked, as highlighted by today’s data.

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