World’s Largest Pension Fund May Have $19 Billion a Year to Buy Foreign Bonds

(Bloomberg) -- Japan’s Government Pension Investment Fund could allocate as much as $19 billion a year to currency-hedged foreign bonds from maturing local securities after giving itself leeway to hold more overseas debt, according to JPMorgan Securities Japan Co.

“Naturally, about 1-2 trillion yen could be allocated into hedged foreign bonds each year,” should there be no drastic changes in currency or equity markets, head of local rates and FX research Takafumi Yamawaki, wrote in a report. The GPIF is expected to redeem about 2 trillion yen ($19 billion) annually from domestic bonds that track the Nomura-BPI customized index, he said.

The world’s largest pension fund, with almost $1.5 trillion in assets, said Tuesday it will consider currency-hedged foreign bonds as part of its domestic debt portfolio. The GPIF bought about 1.3 trillion yen of the hedged securities during the fiscal year ended March 31, according to its annual report released in July.

If the Bank of Japan introduces fresh monetary stimulus by cutting interest rates further, the GPIF could temporarily park about 2 trillion to 3 trillion yen of short-term funds into hedged overseas securities, Yamawaki said. Still, looking at the fund’s investment stance since 2015, it has avoided actively selling Japanese government bonds and this is expected to continue, he added.

As of end of June, GPIF reported 26.9% of total assets under management was in domestic bonds. It could theoretically increase the proportion to 45% of its total portfolio, though that would be unlikely given existing holdings in equities.

To contact the reporter on this story: Chikafumi Hodo in Tokyo at chodo@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Cormac Mullen

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