A Citigroup Inc. strategist sees Japanese government bond yields nearing their peaks and expects financial institutions to step up investments once the fiscal policy outlook becomes clearer.

“JGBs are becoming a more attractive investment,” wrote strategist Tomohisa Fujiki in an Oct. 5 note, adding that bond yields are nearing their peaks.

Japan’s potential growth rate has not changed significantly and 2.5%–3.0% would be fair value for the benchmark 10-year if inflation stabilizes at around 2%.

Japan’s 10-year yield hit 3% for the first time since 1996 last month, as fears of energy price driven inflation and expectations of a faster tightening cycle by the Bank of Japan spurred yields higher.

But as global bond markets turn their attention to fiscal concerns in France, some investors are drawn to JGBs and are considering selling French bonds.

Citi expects the yield curve to flatten as markets increasingly price in future BOJ rate hikes and as supply-demand conditions improve, potentially bringing the recent dominance of value stocks to “a turning point”, wrote strategists including Ryota Sakagami in the same report.

Bank shares in particular may see unwinding pressure as they appear to have already priced in sustained high inflation and earnings improvements, while real estate stocks have yet to fully reflect rapid rent increases, Sakagami wrote.

With bullish positioning in financials and bearish positioning in real estate having been a consensus trade, “a reversal in the bullish financials/bearish real estate positioning could have a substantial impact.”