Abe aids Fed as Japan seen buying $558 billion foreign debt

Timing Right

For Bernanke, the timing couldn’t be better. Yields have risen 49 basis points from the record low of 1.379% on July 25 with a pickup in economic growth curtailing demand. U.S. GDP grew at a 3.1% annual rate in the third quarter, up from 2.7% in the previous three months, the Commerce Department reported Dec. 20.

With the economy improving “Treasuries are susceptible to higher yields” over the next 6 to 12 months, Gary Pollack, who oversees $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York, said in a Jan. 10 telephone interview. “The market will start pricing in that the Fed stops buying Treasuries as part of quantitative easing. Without the Fed you’d see higher yields.”

European Central Bank President Mario Draghi said last week the euro-area economy will slowly return to health in 2013 as the region’s bond markets stabilize after three years of turmoil. Chinese government data showed exports increased 14.1%  in December from a year earlier, the most since May.

Europe, China

Japan raised its holdings of U.S. debt in 2012 by 7.2% to $1.13 trillion as of October and is on pace to again become the largest U.S. creditor since slipping to second place in September 2008. China owns $1.16 trillion. The Treasury Department’s next report on foreign ownership of U.S. securities, covering November, is due Jan. 16.

Overseas investors help reduce U.S. borrowing costs by absorbing about half of the $11 trillion of publicly traded debt. Foreign buyers benefit as the purchases help to weaken their currencies, making their exports cheaper than American goods.

The yen slid 11% in 2012, the most in seven years. It is still about 13% stronger than its 10-year average of 101.15. Domestic manufacturers want the currency to trade between 90 and 100, Hiroshi Tomono, president of Nippon Steel & Sumitomo Metal Corp. said Jan. 7 in Tokyo.

Japan has been battling deflation for more than a decade, with consumer prices falling 0.1% each month on average over the past 10 years, causing shoppers to delay purchases. The nation’s economy contracted in the second and third quarters of 2012.

Purchasing Treasuries would “have the double benefit of allowing them to drive down the value of the yen and also better control any possible increase in yields of Japanese government bonds,” Brian Jacobsen, the chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin, said Jan. 9 at Bloomberg’s headquarters in New York.

Bloomberg News

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