*** Eyes on Japanese lifers/pension............>

JGBS: *** Eyes on Japanese lifers/pension investment plans

- Some of the larger Japanese pension funds & life insurers will issue their

semi-annual investment plans over the coming days. FX hedging costs have made

10-Year U.S. Tsys unappealing for Japanese investors, while the rally in USD/JPY

since mid-March makes them less attractive on an unhedged FX basis. As a result,

the huge funds will likely look elsewhere.

- Looking at the attached chart (provided below), the BOJ's latest YCC tweak,

back in late July, and ensuing curve steepening, have provided a more compelling

investment case for longer dated JGBs vs. core EGB alternatives on an FX hedged

basis for Japanese investors. That being said, 10-Year core EGBs may still draw

some demand from the funds. 10-Year French OATs (FX-hedged) still offer a modest

pickup for Japanese investors vs. 30-Year JGB yields, although the spread has

narrowed. Elsewhere, 10-Year Bunds (FX hedged) had offered a yield pick-up vs.

20-Year JGBs, but this has now disappeared.

- JGB yields vs. 10-Year FX Hedged Bund & OAT Yields (For Japanese Investors):

http://i66.tinypic.com/5zffqw.jpg