Japan Post Insurance plans to trim its investment in Japanese government bonds in the current financial year as it seeks higher returns by buying more corporate and regional bonds, a senior company official said on Friday. State-owned Japan Post's insurance arm holds 95.75 trillion yen ($1.16 trillion) in assets under management, bigger than Australia's economy, which is the world's 13th largest.
The insurer, also known as Kampo Insurance, expects JGB yields to stay low due to concerns over the outlook for the economy, despite mounting speculation over potential increases in bond issuance to fund a budget for rebuilding the northern part of Japan after the March 11 earthquake.
"We'll focus our investments on buying the superlong sectors of JGBs. On top of that, we want to invest in regional and corporate bonds to seek higher returns," Mitsuya Watanabe, general manager at the insurer's investment planning section, told Reuters in an interview. Japan Post plans to invest a total of 7.1 trillion yen ($86.75 billion) in the financial year that began on April 1, little changed from the previous year, Watanabe said.
Of the total, 5.3 trillion yen will go into JGBs in 2011/12, down 500 billion yen from last year, while it plans to raise its investment in municipal and corporate bonds by 500 billion yen to 1.8 trillion yen, Watanabe said. The insurer forecast the yield on key 10 year JGBs would range between around 1.0 and 1.5 percent. It was about 1.210 percent on Friday.
"It looks like (the government) will take account of fiscal discipline when crafting budgets, so I believe JGB yields are unlikely to jump," Watanabe said. "We ... have to see details on the second extra budget, such as its timing and size. Still, I believe the issuer, the Ministry of Finance, will communicate with the market closely, so I don't think we'll see a major mismatch of supply and demand balance in the market." Watanabe said expectations of more JGB issuance would help limit falls in government bond yields.
As JGB yields are expected to be stuck at low levels, the insurer wants to allocate as much as possible to municipal and corporate bonds, and is especially keen on investing in the 10-year sector.
Watanabe said, however, that it would be tough to achieve higher returns as credit spreads on corporate and municipal bonds are expected to be tight this year despite recent rises in corporate bond spreads. Domestic credit spreads have been widening since March, largely due to turmoil at Tokyo Electric Power (TEPCO) after last's month earthquake and tsunami which crippled its Fukushima Daiichi nuclear power plant, causing the world's worst nuclear accident since the Chernobyl disaster in 1986.
Japan Post Insurance declined to comment on TEPCO, saying that it does not comment on individual companies. Japan Post Insurance started investing in risk assets in the previous financial year by increasing its exposure to foreign bonds and domestic equities, Watanabe said.
"We'll continue our effort to invest in stocks and foreign bonds this year by taking into account market conditions and our capacity to take risks." Japan Post Insurance plans to invest about 50 billion yen in foreign bonds in 2011/12, little changed from the year before.
As of February, the insurer's holdings of foreign bonds had risen to 715.4 billion yen, only about 0.7 percent of its total assets, from 658.1 billion yen at the end of March 2010. The insurer holds dollar-, euro- and sterling-denominated foreign paper. It expects the dollar to move in a range of 75 to 95 yen and the euro to shift between 105 and 130 yen.
Watanabe said the firm will seek investment opportunities in domestic stocks after raising these holdings by about 40 percent to 241 billion yen at the end of February. Kampo's investment strategy in JGBs and foreign bonds has not been affected by a series of actions from rating companies, Watanabe said.
But the insurer will closely watch Japan's fiscal situation to see whether suitable disciplinary measures are in place, he said. On Monday, Standard & Poor's slapped a negative outlook on the United States' top-notch AAA rating. S&P cut Japan's rating by a notch to AA minus (AA-), three levels below the top grade at AAA, in late January for the first time since 2002.
Comments
Comments are closed.