Is Japan Dumping French Debt?
Probably. Explains the sudden “demand” at 10Y UST auction, USD strength, weak EUR. Don’t credit the U.S., blame Macron.
Quick market note ahead of US CPI & FOMC: Japan is selling France to buy U.S.
French President Macron’s shock gamble with a call for a snap election in an attempt to block Marine Le Pen rattles French markets from the start of this week.
Why should you care?
Because of the knock-on effects that dropped US yields and strengthened USD by way of Japanese capital reallocation.
Before U.S. CPI and the Fed (and then BOJ) take over market behavior for the rest of the week, we need to acknowledge, or at least consider two key points that may be taking place:
Japanese investors are (among) the heavy sellers of French OATs, and…
Japanese investors are reallocating/diverting their foreign bond capital over to U.S. Treasuries
And if the above is indeed the case, that would explain the unusually strong 10Y UST auction that dropped yields sharply, coupled with USD strength.
Therefore - this is not “demand for USTs” - it’s a flight out of France. Big difference - and let’s not forget this after whatever may come the rest of this macro catalyst landmine week.
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