October 24, 2018 / 7:06 AM / a month ago

UPDATE 1-Nippon Life to hold slightly more JGBs, reduce hedged U.S. Treasuries

* Plans to modestly increase holdings of JGBs after Y700 bln buy

* To shift from Treasuries to U.S. corp bonds, euro debt

* Plan to raise holdings of foreign bonds without FX-hedging

* Plans to increase holdings of foreign stocks, including PE (Adds details)

By Tomo Uetake

TOKYO, Oct 24 (Reuters) - Nippon Life Insurance Co plans to modestly increase its holdings of Japanese government bonds in the six months through March 2019, while reducing U.S. Treasuries with currency hedging, senior company officials said on Wednesday.

The insurer had already boosted its holdings of JGBs by about 700 billion yen in the April-September period, marking a major turnaround after many years of shifting out of Japanese bonds into foreign debt.

Along with many other Japanese institutional investors, Nippon Life had aggressively bought U.S. and European bonds with currency hedging as an alternative to low-yielding domestic bonds, but the cost of hedging has become expensive due to rising U.S. interest rates.

As a result, JGBs look relatively attractive, even though the insurer says their yield is still low.

“We’ll buy JGBs aggressively only after super-long yields rise to and above 1 percent,” said Naoki Akiyama, general manager of finance and investment planning, at a news conference.

Earlier this month, the 30-year JGB yield climbed to 0.950 percent, its highest level since February 2016, and it currently stands at 0.895 percent. Yields on 20-year JGBs , a tenor of choice for Japanese life insurers, last stood at 0.660 percent.

Within the currency-hedged foreign debt space, Nippon Life plans to shift towards U.S. credit products, as well as European sovereign and corporate bonds, while reducing U.S. Treasuries and mortgage-backed securities.

“We expect the hedging costs for U.S. dollar investments will remain high as the U.S. Federal Reserve is hiking interest rates,” said Akiyama.

Nippon Life could consider increasing foreign bonds without currency hedging if the yen strengthens.

“Although we don’t see much upside for the dollar/yen, we will seize opportunities to add foreign bonds without currency hedging when the yen strengthens.”

The insurer, one of Japan’s biggest institutional investors with total assets of 65.4 trillion yen, also plans to increase its holding of foreign stocks, including private equity funds.

The insurer continues to be committed to sustainable finance and investment, including green bonds and ESG (environment, social and governance)-labelled projects, and real assets investment, officials said. ($1 = 112.60 yen) (Reporting by Tomo Uetake Editing by Chang-Ran Kim & Simon Cameron-Moore)

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