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of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
BONDS
A Nikkei article notes that “two major Japanese life insurers are planning to reduce their U.S. Treasury holdings in favor of Japanese government bonds in fiscal 2023 as they grow wary of high currency hedging costs and the risk of a stronger yen. Dai-ichi Life Insurance plans to cut its holdings of currency-hedged Treasurys, and Nippon Life Insurance also plans a more cautious approach to unhedged foreign debt.”
- This doesn’t come as a surprise given the life insurer investment intention interviews provided in recent weeks (we have written on this matter on several occasions in recent times and relatively frequently beyond that).
- Indeed, the article notes that “this comes amid a broad trend in Japan's life insurance industry toward buying more JGBs, anticipating a change in policy by the BOJ,” with the specific companies flagged in the Nikkei article touting such moves previously.
- As the table and chart below show, the elevated FX-hedging costs mean that Italian BTPs offer the only FX-hedged pickup amongst the major 10-Year bonds that we adjust for FX-hedging costs from the perspective of a Japanese investors (on a 3-month rolling basis vs. 10-Year JGBs). Even then, the limited pickup isn’t worth the credit risk surrounding BTPs and Japanese investors haven’t typically deployed meaningful levels of capital into BTPs if we are using history as a precedent.
- FX-hedge unwinds and decreased hedging ratios are very much on the radar, although they have been for some time.
Fig. 1: Benchmarks JGB Yields Vs. Major 10-Year Global Government Bond Yields FX-Hedged From The Perspective Of A Japanese Investor (3-month rolling basis)
| FX-Hedged Yield (%) | Conventional Yield (%) | FX-Hedged Pickup Vs. 10-Year JGB Yields (%) | |
| U.S. 10-Year | -2.0024 | 3.4521 | -2.4274 |
| Germany 10-Year | -1.2124 | 2.2850 | -1.6374 |
| France 10-Year | -0.6313 | 2.8660 | -1.0563 |
| Italy 10-Year | 0.6958 | 4.1950 | 0.2708 |
| Spain 10-Year | -0.1312 | 3.3660 | -0.5562 |
| UK 10-Year | -1.0125 | 3.7980 | -1.4375 |
| Australia 10-Year | -1.0707 | 3.4525 | -1.4957 |
| Japan 10-Year | -- | 0.4250 | -- |
| Japan 20-Year | -- | 1.0420 | -- |
| Japan 30-Year | -- | 1.2700 | -- |
| Japan 40-Year | -- | 1.4700 | -- |
Source: MNI - Market News/Bloomberg
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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