Investors that chose to fight the Bank of Japan’s effort to drive down sovereign bond yields are missing out on the best risk-adjusted returns in two decades.
JGBs returned 2.6 times the market’s volatility this year on an annualized basis, poised for the best year since 1993, according to data compiled by Bloomberg and the European Federation of Financial Analysts Societies. BOJ Governor Haruhiko Kuroda has said about 7 trillion yen ($68 billion) of monthly debt purchases will shrink Japan’s risk premiums.
Strategists have had to throw out fundamental analysis of bonds and the economy in the face of Kuroda’s binge. The 10-year yield of 0.5 percent on Aug. 15, the lowest globally after Switzerland, is negative 73 basis points in real terms indicated by the expected increase in the cost of living by inflation swaps. Societe Generale SA estimates the benchmark yield would be 80 to 90 basis points higher without quantitative easing.