Japan Post joins insurers delaying bond buying on lower yields
JAPAN Post Insurance is joining other major life insurers in holding off from buying domestic sovereign bonds until yields rise, as speculation lingers that the world’s last sub-zero interest rate policy will end later this year.
Fukoku Mutual Life Insurance and Meiji Yasuda Life Insurance also said last week that they are avoiding bond purchases for similar reasons. That’s increasing concern that demand will falter at auctions of super-long debt as life insurers are major buyers of these tenors.
The Ministry of Finance plans to auction 700 billion yen (S$6.3 billion) of the nation’s longest-dated sovereign securities maturing March 2063 on Thursday (Jan 18). The sale will come after demand was weak at offerings of 10-year and 30-year debt this month as lower yields reduced the allure of fixed-income securities. Japan’s 30-year yield has dropped to 1.77 per cent on Friday from a decade high of around 1.9 per cent on Nov 1.
“It is possible to see the 30-year yield rising above 1.8 per cent in the current quarter by pricing in the removal of the negative rate policy,” Hiroyuki Nomura, senior general manager of investment planning department, said on Friday.
“Should the yield climb to attractive levels, we can move up the schedule for next fiscal year and accelerate purchases,” he said. “But we are not planning to buy super-long debt at lower yield levels when the nation is about to change the course of monetary policy.”
Local debt yields are facing downward pressure as major overseas monetary authorities including the US Federal Reserve and European Central Bank are expected to start cutting interest rate this year.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The Bank of Japan is widely expected to stay on hold at a meeting this week, although most economists forecast it will abandon sub-zero rates in 2024 as inflation remains high. Consumer prices gained 2.6 per cent on year in December, staying above the target of 2 per cent since April 2022, according to official data released on Friday.
The central bank will probably scrap negative rates in April, though “I don’t deny such possibility in March”, Nomura said.
A move above zero rate requires the government’s declaration of the end of the deflationary era, which would still take time, he said.
Swap markets currently price in less than a 10 per cent chance of a 25-basis-point rate hike at a January meeting and 44 per cent probability in April. That compared with a 57 per cent chance in January and 100 per cent in April, according to prices on Nov 1, around when yields reached their recent peak. US 10-year benchmark yields also hit a 16-year high late October. BLOOMBERG
Share with us your feedback on BT's products and services
