Are Japanese Bonds Coming Back Into Vogue? One Insurer Says Yes

(Bloomberg) -- The advance in yields on Japanese government bonds is making them an increasingly attractive proposition amid rising global uncertainties, according to Fukoku Mutual Life Insurance Co.

“JGBs can be considered as a place to shift money redeemed from maturing bonds at current levels,” Takehiko Watabe, executive officer at the insurer, said in an interview on Monday. “Choosing by elimination, reallocating money JGBs can be an option rather than taking currency risks.”

While Fukoku didn’t announce any fresh allocations for local bonds under its October-March plan released Monday, Watabe’s comments are a clear signal that JGBs are back on the radar for life insurers -- which are among Japan’s largest buyers of foreign debt. Depressed yields at home have seen Japanese holdings of overseas bonds propel to $2.4 trillion.

The talk of a potential shift in the Asian nation’s money flow has picked up as the Bank of Japan’s tapering of bond purchases and a Treasury-led global rout drove the 30-year yield to as high as 0.95 percent this month. That’s within striking distance of the 1 percent mark touted as a key determinant of how life insurers invest.

Watabe said Fukoku can consider “allocating some money to yen bonds” in its plan for the next fiscal year if the 20-year yield exceeds 1 percent. The 30-year is “worth considering as an option” above 0.9 percent, he said. The yield was at 0.905 percent on Monday.

“If the 30-year JGB is around 0.9 percent, there won’t be much of a difference between 10-year European debt after hedging, as we only can buy maturities up to 10 years for overseas debt,” he said. “Whether we choose European bonds or JGBs will depend on the relative cheapness at a given time.”

READ: Bond Homecoming for Japan Lifers Is Underway, Sumitomo Says

Fukoku is one of the smaller life insurers in Japan, with its asset base -- equivalent of $60 billion as of June -- being about a 10th of the size of Nippon Life Insurance Co.

Investors will look for more signals when companies including Nippon and Japan Post Insurance Co. lay out their second-half investment plans later this week.

“We are taking a wait-and-see stance for the second half” of the fiscal year, Watabe said, citing uncertainties related to the U.S. mid-term elections, the impact of the U.S.-China trade war on economies and the consequences of Brexit.

“If global yields rise, there is hope that JGB yields will also edge higher. We are holding expectations for the yield curve to steepen so that JGBs will be come an investment choice,” he said.

Click here to read more about Fukoku’s investment plan.

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