Japanese investors bought the largest amount of U.K. sovereign bonds in over four years in October as they expected a potential Bank of England interest-rate cut to boost the debt.
They purchased a net ?418.6 billion ($2.7 billion) of U.K. debt in October, the most since January 2021, Japan¡¯s latest balance-of-payments data showed on Monday. The funds also offloaded the largest amount of French sovereign bonds since November 2024 while quickening the sale of German debt.
Market expectations for a Bank of England (BOE) rate cut rose in late October after slower-than-expected inflation backed the case for monetary easing. The central bank left the policy rate unchanged at 4% last month but a tight vote laid the groundwork for a December cut, providing a tailwind for the nation¡¯s bonds.
Separately, U.K. bonds are also attractive when compared with their French and German peers, whose 10-year bonds offer yields that are at least 90 basis points below gilts.
This relative attractiveness comes as protests in France on budget cuts and focus on Germany¡¯s higher defense spending may have prompted Japanese funds to sell bonds from these European nations, according to Nomura Australia.
These investors rotated ¡°into U.K. bonds, where BOE rate cut expectations grew over the second half of October,¡± said Andrew Ticehurst, senior rates strategist at the firm.
Sovereign bonds include those issued by governments, local governments and government agencies.
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