(Bloomberg) interest rate rises from the Bank of Japan should help reduce the currency protection costs for Japanese investors, reducing their hunger for corporate bonds in American investment quality, according to Bank of America Corp.
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De BoJ increased its most important policy percentage last month to the highest level in the midst of projections for higher inflation, which means that the expectations for further rates and a flat -income curve for Japanese government bonds.
That should reduce currency fees and the relative value of American high-quality bonds should improve, stimulating the Japanese demand for them, wrote Bofa strategists, including Yuri Seliger, in a note on Tuesday.
“The covering costs are largely the difference in policy percentages between the US and Japan,” wrote the strategists. “As a result, more Boj walks would further reduce the coverage costs.”
Cover costs for Japanese investors have fallen largely since October, with the Federal Reserve reduced its benchmark interest for the first time in more than four years in September for the first time in more than four years. Three months of dollar hedding costs based on forward contracts for investors established in Yen earlier this month reached their lowest level since September 2022.
Both a robust foreign demand for highly productive American corporate bonds and falling covering costs are companies to Japan, such as Invesco Ltd. who want to grow their basis of buyers of Japanese bonds. The average yield on a high-quality American company bond was 5.31% from Tuesday, according to Bloomberg Index data.
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