Banc of America Securities' fixed-income team plans to polish up its courting of foreign central banks, especially in Asia, underscoring the growing heft of Far East investors in U.S. bond markets, according to an official at the firm.
The firm will start producing more relative value ideas for products and trades specifically targeted at Asian central bank investors, especially for relative value plays in Treasuries, agencies and mortgage-backed securities. The change comes after foreign central banks ramped up their participation in the U.S. market last year, the BofA official said. While central banks have always been big buyers of U.S. assets such as Treasuries, other factors such as Japan's buying of dollars to stem the rise of the yen and the growing trade deficit made for much more active participation than had been expected.
BofA plans to target central banks in Asia, including Japan, China, Singapore and Hong Kong, with trade ideas. Further details about BofA's plans could not be determined and the dealer may finalize its plans for the initiative by this week. Tom Connor, head of global fixed income, declined comment.
The growing prominence of foreign investors seems to be gaining steam. Asian investors snapped up a record 51% of the $4 billion three-year notes sold by the Federal Home Loan Bank last week and the December five-year Treasury auction drew a record 66% in indirect bids, which are watched closely as a proxy for Asian central bank demand. Foreign central banks, especially China, are also significantly ramping up their holdings of prime mortgage assets (BW, 12/10/04).
