### POV: JAPANESE LIFERS COULD FLATTEN........>

BONDS: ### POV: JAPANESE LIFERS COULD FLATTEN GLOBAL YIELD CURVES FURTHER

The latest semi-annual Japanese lifer investment intentions show a wider

openness to entering unhedged-FX foreign bond holdings, albeit without any

outright commitments.

- This comes as the inflated USD hedging costs have made it costly for Japanese

lifers to hold FX hedged US Tsy positions, eroding most, if not all of the yield

advantage that Tsys provide relative to the comparable JGBs, crimping the

profitability and cash flows of life insurers in the process.

- The latest weekly int'l security flow data showed that Japanese investors were

net buyers of foreign bonds for the 2nd week in a row with flows moving back

into foreign bonds at a quicker than average rate for the start of a new FY.

- Lifers were also net buyers of foreign bonds in March, even though

historically they tend to stay on the side-lines into fiscal year-end. 

- This should boost demand in the longer end of the US Tsy curve and other

FX-hedging cost prohibited spaces such as Australia, with perhaps a further

flattening of such yield curves owing to Japan lifers' longer dated preferences.