TOKYO, June 16 (Reuters) - Japanese life insurers are investing in the sovereign bonds of emerging countries such as Poland and Mexico, as ultra-low interest rates in Japan and other developed markets hurt yields.
The top four insurers - with a combined securities portfolio worth $1 trillion - have invested the bulk of their funds in Japanese government bonds (JGBs) and major sovereigns, but massive monetary easing in Japan and the euro zone have forced them to break with their traditionally conservative stance.
Portfolio managers tell Reuters they have started shifting or are planning to diversify the currency make-up of their investment assets.
“We are planning to start bond investments in new countries. We want to spend up to 30 percent of 500 billion yen ($4.1 billion) earmarked for foreign bonds,” Iwao Matsumoto, general manager at investment planning department at Sumitomo Life Insurance Co, told Reuters, as part of a series of interviews with Japan’s life insurers about their debt portfolios.
The insurer’s foreign securities portfolio has mostly comprised U.S. Treasuries and bonds from Australia and major euro zone countries.
Matsumoto said it was now looking beyond the usual staple of U.S., Australian and major euro zone bonds at other sovereigns, with credit ratings of triple B or higher, but did not specify.
The Bank of Japan’s expanded stimulus in October was the catalyst for the shift.
“Around the same time, there were expectations of massive easing by the European Central Bank (ECB). We thought we needed to take action,” Matsumoto said.
Nippon Life Insurance Co, Japan’s largest life insurer by assets, said it started investing in sovereigns of Latin American countries in the year ended in March. U.S. dollar-denominated assets make up nearly 60 percent of its foreign currency portfolio.
“We expect the pace of Fed rate hikes will be slow even if it starts raising rates. We cannot expect Treasury yields to climb much,” said Kiyokazu Kimura, deputy general manager at Nippon Life’s international investment department.
Life insurers have been struggling to find investments that deliver sufficient returns ever since the BOJ started buying bonds aggressively in April 2013, depressing yields, followed by a similarly massive programme from the ECB this year.
The benchmark 10-year JGB yield is around 0.5 percent. In contrast, Poland’s 10-year bond yield is around 3.3 percent and Mexico 6.2 percent.
Mexican and Polish bonds are also attractive because of the countries’ relatively stable political and fiscal conditions.
Dai-ichi Life Insurance Co said it had increased investment in Mexico and Poland sovereigns in the previous financial year. By end-March, Dai-ichi’s Mexico peso-denominated assets stood at 147.7 billion yen, up 34 percent from a year earlier and Polish zloty-denominated assets at 136.2 billion yen, up 25 percent.
Dai-ichi has expanded the number of currencies it invests in over the last few years.
“Our foreign bond investment stance is to diversify as much as possible. Damages would be high if we concentrate in one particular country,” said Yasuyuki Watanabe, deputy general manager at Dai-ichi’s investment planning department.
$1 = 123.3500 yen Editing by Jacqueline Wong