Nippon Life CIO: may buy more European debt, U.S. corporate bonds

Wed Mar 2, 2016 7:42pm EST
 
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By Tomo Uetake and Hideyuki Sano

TOKYO (Reuters) - Nippon Life Insurance Co [NPNLI.UL], Japan's biggest private life insurer, will likely have no choice but to increase currency-hedged foreign bond investments as domestic bond yields have sunk to negative levels, a top official said.

Hiroshi Ozeki, chief investment officer at Nippon Life, also told Reuters the company expects the moderate recovery in the U.S. economy to continue and that the dollar was unlikely to fall below 110 yen. Nippon Life has total assets of 61.5 trillion yen ($540 billion) under management.

The Bank of Japan's decision in late January to introduce negative rates - a step it had long denied even considering - drove domestic bond yields sharply lower. The 10-year Japanese government bond (JGB) yield fell below zero for the first time on the secondary market three weeks ago and Japan became the first G7 nation to auction 10-year bonds at a negative yield on Tuesday.

That means about 80 percent of JGBs have negative yields - a dire situation for Japanese institutional investors, as JGBs account for the biggest part of their portfolios.

HUNT FOR HIGHER YIELD

With Japanese investors searching for alternative due to the squeeze on yields, investments in foreign bonds with currency hedging will likely gather momentum, Ozeki said.

Japanese investors, including Nippon Life, have long favored U.S. Treasuries because of their relatively high yields and due to the depth of the market. But the rising cost of hedging against the dollar is making them much less attractive.   Continued...

 
Hiroshi Ozeki, chief investment officer (CIO) of Nippon Life Insurance Co, Japan's largest private insurance company, speaks during an interview with Reuters in Tokyo, Japan, March 2, 2016. REUTERS/Toru Hanai