Goldman: Japan Lifer Allocation Plans Show Mixed Purchase Intentions

Goldman Sachs note that "several Japanese life insurers announced their allocation plans for the new fiscal year, providing some insights into their likely demand for foreign fixed income. First, while a few insurers announced plans to continue investments in overseas fixed income either on a hedged and unhedged basis, others expressed reluctance, noting concerns about currency risks and scope for increases in FX hedging costs as potential headwinds. While most acknowledged attractive foreign-domestic yield differentials, several institutions noted longer maturity JGB yields have become increasingly compelling, suggesting willingness to add to domestic (yen) bond holdings if 20- to 40-Year yields continued to move higher from current levels. Finally, some insurers expressed interest in moving further out the credit spectrum, namely in foreign credit and agency debt, given historically low levels of sovereign yields. On the whole, while we see some Japanese insurer demand for foreign sovereign bonds, in aggregate these plans suggest flows are unlikely to be unusually large or persistent."