New Rules for Global Banks to Benefit Taiwanese Yield Hunters

(Bloomberg) -- Taiwanese life insurers facing pressure to deliver returns are getting a boost from bank bond offerings encouraged by global regulators.

HSBC Holdings Plc sold $2 billion of notes this week in Taiwan to yield 4 percent under new requirements known as total loss-absorbing capacity, or TLAC, devised by the cross-border Financial Stability Board to prevent future government bailouts of financial institutions. That’s higher than yields on foreign-currency senior securities, which insurers have often purchased, that have fallen as low as 3.35 percent this quarter, according to Bloomberg data.

Taiwanese life insurers had NT$21.2 trillion ($674 billion) in assets as of June 30, a sum bigger than the economic output of Switzerland. They have been taking a shine to foreign-currency assets with 10-year government bonds at home yielding around a paltry 0.65 percent, and have emerged as dominant buyers of U.S. corporate bonds. Their holdings of the debt have tripled in four years to $76 billion, according to Wells Fargo Securities strategists Nathaniel Rosenbaum and George Bory last month.

Persistent low interest rates around the world, however, started to drag down coupons on debt from international borrowers sold in Taiwan this year.

In contrast, HSBC’s $2 billion TLAC notes carry a risk premium that makes them attractive to domestic investors, according to Eva Chou, an analyst at Standard and Poor’s local subsidiary, Taiwan Ratings Corp. JPMorgan Chase & Co.’s $100 million offering of similar securities in May priced at 4.13 percent.