MNI: Japan Sumitomo Life Plans Increased Overseas Bond Buys

--Sumitomo Life: To Restrict Investment in Super Long-Term JGBs 

--Sumitomo Life: But To Buy Longer-End JGBs If Yields Rise

--Sumitomo Life: To Sell Hedged Foreign Bonds If Yen Rise

     TOKYO (MNI) - Japan's Sumitomo Life Insurance company plans to increase the

balance of its foreign bond holdings, including corporate bonds, by around Y190

billion in the second half of this fiscal year after increasing the balance by

Y190 billion in H1, the company's chief fund manager said Wednesday.

     The company also plans to increase the balance of domestic bond holdings by

less than Y290 billion, again after increasing by Y290 billion in the first 6

months of the year.

     Life insurance firms favor long-term yen assets that match their long-term

yen liabilities, although they consider investments in hedged foreign bonds as

an alternative to yen bond holdings.

     "Low interest rates will continue for a prolonged period and we will invest

in high-return financial assets," Toshio Fujimura, general manager of Investment

Planning Department at Sumitomo Life, told reporters.

     --UNHEDGED BONDS

     He added that the company will consider investing in unhedged foreign

bonds, including corporate bonds, when the yen appreciates.

     Fujimura indicated that the company stands ready to buy unhedged foreign

bonds, when the dollar-yen exchange rate trades below Y100, the higher end of

Sumitomo's expected Y100 of Y115 range.

     Sumitomo Life will also consider increasing hedged foreign bonds, mainly

corporate bonds, as hedging costs are falling in the wake of the U.S. Federal

Reserve's rate cuts.

     "The hedging costs in the U.S. dollar is currently around 3%. Looking

ahead, the Fed is expected to cut its federal funds rate twice more, so the

hedging costs will fall to around 1.5% or slightly higher. We will mainly

consider investing in U.S. dollar assets," Fujimura said.

     But the company expects the balance of hedged foreign bonds in H2 to be

unchanged from H1.

     --CAUTION OVER JGBS

     The company remains negative about investing in super long-term JGBs as

those bond yields will likely stay at low levels, although it will consider

increasing investment in longer-end JGBs, when those bond yields rise.

     It is unlikely that JGB yields rise based on the Bank of Japan easy policy

but Sumitomo must have to buy super long-term JGBs as the duration of holding

bonds shortens due to the redemption.

     The 30-year bonds closed at 0.415% on Monday and the 40-year bonds ended at

0.455%.

     Fujimura expects the 10-year JGB yield to move between -0.35% and +0.10%

for the second half of this fiscal year and the U.S. Treasury 10-year yield to

move in a range of 1.30% to 2.30%.

     Japan's fourth largest life insurer by assets raised its holdings of

foreign bonds (including corporate bonds) to Y9.86 trillion, or 30.1% of its

total assets, at the end of September.

     --FRESH FUNDS

     Fujimura expects new assets from insurance premiums in the October-March

period to be about Y300 billion, although it can fluctuate depending on sales of

insurance products, compared with about Y530 billion including funding through

repo markets in the first half of this fiscal year.

     The company expects the dollar to trade between Y104.5 and Y112.4 and the

euro to move in a range of Y115.9 to Y126.8 for the second half of this fiscal

year.

     At the end of September, Sumitomo Life's assets totaled Y32.78 trillion, up

from Y31.92 trillion at the end of March.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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