Treasuries: Asian life insurers shun Treasuries as yields judged too low
19/04/2021 08:50
By Kevin Buckland
April 19 (Reuters) - Life insurers in Japan and Taiwan are
shunning Treasuries as benchmark yields languish around
five-week lows.
Japan's Daido Life Insurance said it would consider buying
10-year Treasuries when yields rise to 2%, from around 1.56%
currently, while a major Taiwanese insurer said it would buy
when yields approach 1.75%.
The benchmark yield US10YT=RR rose as high as 1.776% at
the end of March for the first time in 14 months, as investors
bet that massive fiscal stimulus amid continued monetary easing
in the United States would spark faster inflation than the
Federal Reserve anticipates.
But this month, the Fed's insistence that near-term price
pressures will be transitory has soothed the market, with the
10-year yield dropping as low as 1.528% last Thursday.
Still, many market participants expect yields -- which rise
when bond prices decline -- to appreciate in the medium term
amid increased Treasury issuance to fund President Joe Biden's
spending plans.
"There's lingering expectations of inflation as the U.S.
economy recovers while there are also concerns about
oversupply," said Kenya Takahashi, general manager of investment
planning at Daido Life Insurance, who sees the benchmark yield
potentially rising to 2.5% over the coming 12 months.
"Considering the risk of a further rise in bond yields, we
think it is a bit premature to step up buying of U.S.
Treasuries."
A yield of 2% or higher, however, could spur Daido to buy if
it judged the risk of further yield appreciation was limited, he
added. The benchmark yield hasn't been at 2% since August 2019.
Japanese investors have been at the forefront of the
Treasuries rout in the first three months of this year.
Foreign selling of Treasuries in February was at its highest
since April 2020, with Japan leading the slide in foreign
holdings as the end of its fiscal year approached, according to
U.S. Treasury data released last week. urn:newsml:reuters.com:*:nL1N2M82Z6
Analysts have said they expected Japan to recommence
Treasury purchases in its new fiscal year, which began April 1.
But Fukoku Life Insurance, for one, plans to keep holdings
of foreign sovereign bonds flat.
"There is risk that the Federal Reserve might change its
monetary policy but we basically think that the low
interest-rate environment will continue," said Yoshiyuki Suzuki,
Fukoku's general manager of investment planning.
"Credit products, with their relatively high yields, will be
the main focus of our new investments."
Taiwanese insurers are also now avoiding the Treasury
market, a foreign-exchange official at the Taiwan's central bank
told Reuters.
"In March and April, Taiwan's life insurers bought U.S.
Treasuries, but recently they've pulled back a bit as the yields
have fallen somewhat," the person said, speaking on condition of
anonymity.
An investment manager at a major Taiwanese life insurer told
Reuters he was watching the Treasury market "very closely," and
would buy when yields on 10-year notes and 30-year bonds
approach 1.75% and 2.5% respectively.
The 30-year yield currently stands around 2.25%.
"Then (we'll) cash in when the yield is declining," he said.
(Reporting by Kevin Buckland in Tokyo
Additional reporting by Daiki Iga and Yoshiko Mori in Tokyo, and
Emily Chan and Liang-sa-Loh in Taipei
Editing by Peter Graff)