“Over 2% for 30 years” and “rock, paper, scissors”, life insurance’s super long-term bond strategy – Bloomberg

The keywords for life insurance companies to invest in ultra-long-term bonds in 2024 are a yield level of “over 2%” and “delayed rock-paper-scissors” in which they wait for interest rates to rise due to the Bank of Japan’s interest rate hike. Life insurance companies’ investment in super-long-term bonds is likely to be restrained until the yield on super-long-term bonds exceeds 2% to some extent after the Bank of Japan’s interest rate hike is expected from summer to fall.

　　 Kenichiro Kitamura, general manager of investment planning at Meiji Yasuda Life Insurance, says that the current situation is “not to actively accumulate super-long-term bonds.” We expect the Bank of Japan to raise interest rates as early as July, and if there is a rate hike, we expect the yield on 30-year bonds to exceed 2%. He expects interest rates to rise one or two times next year, saying, “If the Bank of Japan raises interest rates, our policy is to put them out later.”

The yen’s depreciation is accelerating in the foreign exchange market as the timing of interest rate cuts in the United States is pushed back and the narrowing of the Japan-US interest rate differential is expected to become more distant. The weaker yen is pushing up domestic prices, and concerns about the Bank of Japan’s premature rate hike are putting upward pressure on interest rates. In the bond market, expectations are high for purchases by major investors such as life insurance companies, but many remain cautious about investing in ultra-long-term bonds, and market expectations may end up being disappointing.

Tsutomu Okumura, senior interest rate strategist at SMBC Nikko Securities, points out that life insurance companies often point to a 2% interest rate on 30-year bonds as a guide to accelerating investment. He believes that “until the interest rate on 30-year bonds reaches a level that stimulates demand for life insurance, upward pressure on interest rates may continue from the supply and demand side.”

The level of super-long-term bond yields that many life insurance companies are aware of is “over 2%.” Hiroyuki Nomura, executive officer and head of investment planning at Japan Post Insurance, says it would be “attractive” if the 30-year bond yield exceeds 2%. Fukoku Life Insurance has a policy of refraining from actively accumulating bonds until the average yield on bonds with remaining maturities of 20 to 30 years exceeds 2%. Until then, Junya Morimi, head of the finance and planning department, says, “We will limit our operations to selling stocks with low yields and replacing them with stocks with longer maturities.”

The 30-year bond yield was 1.935% as of the 25th, approaching 2%, but just because it exceeds 2% doesn’t mean life insurance companies will start buying all at once. Mitsuo Masuda, general manager of investment planning at Sumitomo Life Insurance, said, “While the current level is quite attractive compared to debt costs, we believe there is still room for interest rates to rise, so we have not decided to make concentrated investments at this level.” ” he explained. He said, “We will invest flexibly to get the highest yield possible.”

Kohei Horikawa, General Manager of Investment Planning at Dai-ichi Life Insurance, also stated that the yield on 30-year bonds “will become a relatively attractive level if it exceeds 2%,” but added, “Our assumption is that it will be a little higher. “I’m not going to go out and buy anything right now.”

Bank of Japan interest rate hike

Along with yield levels, life insurance companies are also concerned about the timing of the Bank of Japan’s interest rate hike, which is expected to occur between July and October in most cases.

Japan Post Insurance’s Mr. Nomura said that if the Bank of Japan decided to raise interest rates further, the yield on 30-year bonds “could very well exceed 2%, so we would like to think about moving at that point.” The company holds around 3 trillion yen in hedged foreign bonds, and says, “If domestic interest rates rise significantly, we will shift from hedged foreign bonds to yen interest rates.”

Mr. Kitamura of Meiji Yasuda expects interest rates to rise once or twice next year, and if the Bank of Japan continues to raise interest rates, he says, “It is inevitable that the 10-year interest rate will rise to 2%. We will secure investment capacity and invest.”

on the other hand, Akira Tsuzuki, executive officer and general manager of financial planning at Nippon Life Insurance, said, “At this level, we will continue to buy on a regular basis,” setting the company apart from other life insurance companies. However, the center of the assumed range for 30-year bond yields is around 2%, and like other life insurance companies, we are conscious of this level. Tsuzuki said, “If it exceeds 2%, it will be an opportunity to buy, and I would like to buy my annual allocation ahead of schedule.”

Keisuke Tsuruta, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, points out that life insurance companies’ investment outlook appears to be rising due to expectations for higher interest rates due to the Bank of Japan’s policy revisions. Currently, 2% is a guideline, but that could change depending on the future situation, so it would be best to avoid placing too much hope on buying at 2%.

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