Yen Surge Ends $353 Billion Insurer's Wait to Buy U.S. Bonds
Yen Surge Ends $353 Billion Insurer's Wait to Buy U.S. Bonds
(Bloomberg) -- Meiji Yasuda Life Insurance Co. is boosting purchases of unhedged U.S. debt, encouraged by the yen’s strong start to 2018 and rising yields.
“The time for unhedged buying has finally come,” Shinji Inoue, a manager of investment planning department at Meiji Yasuda, which oversaw the equivalent of $353 billion in total assets as of December, said in an interview. “We were at our wit’s end until the third quarter with a sheer lack of volatility. I’m glad we’ve endured. The environment now is easier to invest in foreign bonds.”
The recent advance in U.S. yields is boosting their appeal for Japanese insurers by providing some cushion against rising hedging costs. The 10-year Treasury yield hit a four-year high of 2.94 percent last week and Goldman Sachs Asset Management predicts a rise to as high as 3.5 percent in six months as the market prices in a steeper pace of Federal Reserve tightening.
Japanese life insurance companies bought a net 1.05 trillion yen ($9.7 billion) in overseas debt last month, the most since August 2016, according to data from the Ministry of Finance.
The yen climbed to 105.55 per dollar last week, its highest level since November 2016, as a global stock rout spurred demand for haven assets. It traded 0.4 percent weaker at 107.73 as of 3:45 p.m. in Tokyo, with its 4.6 percent rise this year being the biggest among major currencies.
Meiji Yasuda started adding to such holdings in late January, just as the dollar-yen broke below the 110-level for the first time in four months, according to Inoue. Of its around 5 trillion yen in outstanding foreign-bond holdings as of December, the proportion of hedged and unhedged securities was about equal.
The insurer plans to spend “a couple of 100 billions of yen” more buying unhedged dollar bonds, Inoue said.
While there’s a “good chance” of a drop in the dollar-yen to 105, Inoue said he doesn’t expect it to fall below 100. The insurer continues to see a “moderate uptrend” for the pair in the year starting April 1.
U.S. debt continues to be the focus for Meiji Yasuda. It is mostly buying Ginnie Mae mortgage-backed debt with maturities around five years, while also investing in U.S. credit products, Inoue said.
The 10-year yield’s rise toward 3 percent has drawn the insurer back to Treasuries after it held off purchases between April and December.
“We saw the 10-year yield below 2.5 percent as too low” taking hedging costs into consideration, he said. “Yields around 2.7 to 2.8 percent are fine. U.S. yields are considerably higher than those of other major countries, which is attractive. We don’t plan to change our view.”
To contact the reporters on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net, Komaki Ito in Tokyo at kito@bloomberg.net.
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Shikhar Balwani
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