Japanese institutional investors increased purchases of domestic government bonds to their highest level since 2009 during the six months to September, as pension fund rebalancing and rising global bond yields drove shifts in fixed income allocations, according to a report by Bloomberg.

Net purchases of Japanese government bonds (JGBs) totalled ¥18.8tn ($119bn) in the fiscal first half, according to data from the Japan Securities Dealers Association. Trust banks, which typically act on behalf of pension funds, accounted for almost half of the buying, while banks contributed approximately one-third.

Keisuke Tsuruta, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, attributed the increase to portfolio rebalancing by public pension funds following strong equity market performance and yen depreciation, which prompted allocations to shift from equities into bonds.

Demand for domestic debt remained strong at Tuesday's auction of 20-year JGBs, which attracted record demand.

Meanwhile, Japanese investors showed diverging approaches to overseas fixed income. Trust bank accounts purchased ¥10.1tn of foreign bonds during the six-month period, while domestic banks sold ¥7.4tn, their largest net disposals since at least 2014.

Tsuruta said expectations that higher oil prices would push up yields had encouraged banks to reduce exposure to US Treasuries and European government bonds, while domestic bond purchases were partly driven by the need to generate returns on deposit funding.

The flows highlight shifting institutional positioning across global sovereign debt markets as inflation pressures, currency movements and rising yields reshape fixed income allocations.