Japanese investors bought U.S., UK bonds in November

TOKYO (Reuters) - Japanese investors extended their buying of U.S. bonds in November, attracted by high yields, after making the largest net purchase of U.S. debt in more than two years just few months earlier.

Japanese investors purchased a net 1.297 trillion yen ($11.98 billion) of U.S. bonds in November, data from Japan's Ministry of Finance showed on Friday, in a move that could potentially put a dampener on the yen.

The latest buying follows a net purchase of more than 2.5 trillion yen of U.S. bonds in September, which was the biggest amount since July 2016.

While Japanese investors are showing more appetite for U.S. bonds, their purchases have remained erratic for the time being. They sold net 111.2 billion yen of U.S. bonds in October.

In November, Japanese banks were bullish on U.S. government debt following a global equity slump and as the yield on 10-year U.S. Treasuries mostly held above the 3-percent level, said Takafumi Yamawaki, chief rates strategist at JPMorgan.

Treasury yields had fallen sharply late last year as the sell-off in global equity markets fuelled safe-haven demand for debt and investors reduced their rate hike expectations by the Federal Reserve for 2019.

After scaling a more than 7-year high of 3.261 percent in early October, the 10-year Treasury yield started a steep fall in November, slipping below the 3.0-percent level at the end of the month. It declined to a near one-year low of 2.543 percent last Friday.

Japanese investors continued to pour a large amount of money in European bonds.

They bought 165 billion yen of UK bonds, bringing their total buying so far last year to almost 1.5 trillion yen.

"UK politics was in such chaos that expectations of a Bank of England rate hike has receded. Thus many investors were ready to buy gilts on dips," said Naoya Oshikubo, senior manager at Sumitomo Mitsui Trust Asset Management.

Japanese investors were buyers of Irish debt for the 18th straight month, purchasing net 141.7 billion yen of Irish bonds, and snatched 161.4 billion yen of Swiss debt.

But in November they were sellers of French bonds and German Bunds for the second month in a row, offloading net 60.7 billion yen of French bonds and 4.0 billion yen of German debt.

"I think investors carried profits from selling Bunds over to UK bonds," Oshikubo added.

The 10-year French bond yield rose to as high as 0.833 percent on Nov. 8 from 0.745 percent at the start of the month, while the 10-year German Bund yield climbed to as high as 0.469 percent from around 0.379 percent.

Since then, both yields have declined. The 10-year French bond yield stood at 0.675 percent on Jan. 10, while the 10-year Bund yield was at 0.197 percent.

Japanese investors also sold a net 248.3 billion yen of Australian debt, the data showed, the largest amount of selling since December 2014.

In total, they bought about 1.9 trillion yen of foreign currency bonds in November, the largest amount in two months, the data also showed.

(Reporting by Daniel Leussink; editing by Richard Pullin & Shri Navaratnam)

By Daniel Leussink