The very low-interest rates in Japan and the eurozone have led savers and investors in these two countries/regions to substitute foreign bonds for domestic bonds in their portfolios, as analysts at Natixis note.
“Savers and investors in the eurozone and Japan have substituted foreign bonds for domestic bonds because long-term interest rates are more attractive in the rest of the world.”
“Central banks have bought domestic bonds and savers/investors have received money instead of the bonds they hold; they have bought foreign bonds to rebalance their portfolios.”
“Savers and investors in Japan and the eurozone are even encouraged to borrow at very low-interest rates to buy foreign bonds.”
“This situation is very inefficient since part of the savings of Japan and the eurozone are financing purchases of bonds abroad, and therefore investments or deficits abroad, and not in the country. However, this problem leading to this inefficient situation will remain valid after the coronavirus crisis.”