Japanese investors emerged as significant buyers of overseas debt last week, driven by expectations that U.S. bond yields will remain elevated as inflation stays high.

According to Japan’s Ministry of Finance data, Japanese investors bought a net 1.6 trillion yen ($11.27 billion) worth of long-term foreign debt, their sixth weekly net purchase in a row.

The U.S. Federal Reserve left interest rates unchanged last week, breaking a streak of 10 consecutive rate increases, but indicated there would be two small hikes in the second half of the year.

“Both US Treasuries and European bonds are offering higher yields than JGBs, where yields have been capped by the BoJ’s YCC,” said Wei-Liang Chang, a FX and Credit Strategist DBS Bank.

“Given attractive foreign rate differentials against domestic bonds, and the BoJ’s patient stance in keeping monetary policy supportive, Japanese investors are likely to continue making investment in foreign debt.

Additionally, the rebalancing of portfolios at pension funds, prompted by a sharp rally in stocks, further fueled inflows into overseas bonds, said Keisuke Tsuruta, a fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

Japanese investors also purchased about 122.9 billion yen worth of foreign equities last week.

FOREIGN FLOWS INTO JAPANESE EQUITIES

Foreign investors sold a net 15.33 billion yen worth of Japanese equities last week, snapping a 10-week-long buying streak, data from exchanges showed.

The Nikkei index reached a fresh 33-year high, surging about 4.5% during the week, while the broader Topix index gained 3.4%.

However, foreigners sold derivatives worth 656.76 billion yen on expectations that the rally would soon lose stream.

On the other hand, non-native investors sold 634.8 billion yen worth of Japanese long-term bonds after purchases of 193.3 billion yen in the previous week.

($1 = 141.9600 yen)