Japan’s record-buying spree of Australian bonds may cool off with the Reserve Bank of Australia mulling an expansion of its quantitative easing program.

Bond yields in Australia fell last week after RBA Governor Philip Lowe fanned expectations that the 10-year yield will be lowered to boost jobs. That could put a damper on Japanese demand after they bought ¥2.38 trillion ($22.6 billion) of Aussie sovereign bonds in the five months ended Aug. 31.

“The pace of inflow may not be able to be sustained at the very high levels we have been witnessing,” said Andrew Ticehurst, a rates strategist at Nomura Holdings Inc. in Sydney. “The absolute yield, the steepness of the curve and the ability to get carry and roll have been important for Japanese investors.”

The options for Japanese investors, among the biggest buyers of global debt, have shrunk this year as central banks slashed rates and the value of negative-yielding bonds surged to almost $17 trillion. Australia’s bond market is a prime option as its yield curve is the steepest among developed peers, except for Italy whose credit rating is far below Australia’s AAA.

Australia’s 10-year notes offer a currency-hedged yield of 36 basis points for yen-based investors, compared with 24 basis points for Treasuries. Aussie bonds offered 15% returns to Japanese investors in the six months ended September on a yen basis without currency hedges, according to a Bank of America index. U.S. Treasuries lost 1.9% during that period.

Japanese money managers bought a net ¥2.38 trillion ($22.6 billion) equivalent of Australian sovereign bonds in the five months ended Aug. 31, according to the latest balance-of-payments data compiled by Bloomberg. That’s a record for Japan’s fiscal first half even with one month of data yet to be collated.

A carry-and-roll strategy would entail investors holding onto the bonds for coupon payments, and then getting a capital appreciation earned on the security as it slides down the yield curve toward maturity.

Governor Lowe said last week that the 10-year yield is higher than “almost everywhere in the world.” That helped spur forecasts from Goldman Sachs Group Inc. and JPMorgan Chase & Co. that the RBA could introduce a new QE program buying A$100 billion ($71 billion) of debt as early as its next meeting on Nov. 3. So far, it has only targeted the three-year bond with a yield-curve control policy introduced in March.

Still, some investors expect Japanese demand for Aussie bonds to hold up.

Australia is likely to follow New Zealand in eventually adopting a negative rate policy, said Akira Takei, a Tokyo-based global fixed-income money manager at Asset Management One. While a possible decline in Aussie yields could weigh on demand from Japanese investors, “those with focus on capital gain may help keep the same high pace of purchases,” he said.

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