By Tomo Uetake
TOKYO (Reuters) -Japan’s major life insurers plan to focus on swapping low-yield domestic bonds for higher-return issues in the second half of the fiscal year through March 2026, offering little hope for a rebound in demand for super-long debt.
Interviews with 10 domestic life insurers, with assets under management totalling nearly 300 trillion yen ($2 trillion) as of March, showed that larger insurers intend to centre their yen bond investments on portfolio rebalancing, with overall holdings expected to shrink.
Japanese government bond (JGB) yields began to surge in late May, particularly on the longer end of the curve, as diminishing demand among life insurers and other traditional buyers led to poor results at debt auctions.
The JGB market has also been undercut by a gradual reduction in purchases by the Bank of Japan, as well as concerns over potential fiscal deterioration.
Life insurers previously were heavy buyers of super-long JGBs in order to meet regulatory asset requirements related to the policies they sold. But the insurers have largely met those asset thresholds, diminishing their appetite to add to the holdings.
The sharp rise in long-term yields earlier in the year prompted insurers to take measures to reduce impairment risks and improve the quality of their portfolios by replacing older, lower-yield bonds.
Meanwhile, many insurers also plan to trim domestic equity positions, which have risen to record valuations as the Nikkei share index topped the 50,000 mark for the first time this week.
For instance, Nippon Life reported unrealized gains of 9.5 trillion yen ($63 billion) on domestic stocks through September.
“Stock prices are quite high, so we are selling or rotating out of overvalued names,” said Akira Tsuzuki, executive officer of the financial planning division for Nippon Life, adding: “The realized gains from equities make it easier to absorb losses from swapping out bonds”.
Many insurers expect the 30-year JGB yield, currently around 3.05%, to finish the year at roughly the same level.
“Yields are at levels that cover liability costs, but we are not in a hurry to buy,” a Dai-ichi Life executive said.
Meiji Yasuda Life is also in wait-and-see mode, citing caution over the fiscal policy of new Prime Minister Sanae Takaichi and U.S. inflation.
($1 = 150.78 yen)
(Reporting by Tomo Uetake; Writing by Rocky Swift; Editing by Alexander Smith)
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