MNI BRIEF: Japan's Sumitomo Life Eyes Unhedged Foreign Bonds

Japan's Sumitomo Life Insurance plans to increase holdings of unhedged foreign bonds by several hundred billion yen, while reducing the balance of hedged foreign bonds by a similar amount due to rising hedging costs this fiscal year, Toshio Fujimura, general manager of Investment Planning Department at Sumitomo Life, told reporters on Tuesday.

The balance of domestic bond holding will likely drop by JPY100 billion due to the redemptions, although the company plans to buy super long-term Japanese government bonds when yields rise, Fujimura said.

The company increased the balance of domestic bonds by about JPY180 billion to JPY14.52 trillion due to purchases of super long-term JGBs during the last fiscal year, see: MNI: Japan's Sumitomo Life Eyes Yen, Unhedged Foreign Bond Buys - Last Year. The balance of foreign bond holdings rose by JPY650 billion to JPY10.7 trillion during the last fiscal year as the firm increased investment in unhedged foreign bonds, although some of hedged foreign bonds, including sovereign, expired.

Also see:
MNI BRIEF: Japan's Nippon Life Outlines FY Bond Holding Plans
MNI: Japan Nippon Life To Boost Yen Bond Holdings In FY2021

Fujimura also said that the company will increase purchases of longer-end JGBs, although he is focused on longer-end bond yields at around 1.5%.. He added that the company plans to buy hedged corporate bonds to seek higher returns but the balance will likely fall due to a combination of the redemption of foreign bonds and the shift to unhedged foreign bonds this fiscal year.

Fujimura said that the company remains cautious about actively buying European bonds. “Hedging-costs in Europe are lower than those of the U.S. but European bond yields aren’t as high as the U.S. bonds,” he said.

Fujimura is paying attention to the risk that the yen will rebound if inflationary pressure calms down as a result of the Fed’s rate hike path.

The company expects the dollar to trade between JPY120 and JPY135 and the euro to move in a range of JPY125 to JPY150 this fiscal year. It sees the 10-year JGB yield to move between -0.05% and +0.25% and the U.S. Treasury 10-year yield to move in a range of 2.00% to 3.5%.