June 14, 2018 / 7:44 AM / in 9 months

Japan Post Insurance to buy emerging market bonds if U.S. rates spark selloff

TOKYO (Reuters) - Japan Post Insurance Co (7181.T), one of the largest Japanese institutional investors, plans to buy emerging market bonds if other investors dump those assets as the U.S. Federal Reserve hikes interest rates, the firm’s senior managing director said.

The firm, popularly known as “Kampo”, started investing in emerging market bonds, both sovereign and corporate, earlier this year through outside managers, Takayuki Haruna, head of credit and alternative investment, told Reuters on Thursday.

“The amount is not much at the moment. We just wanted to enter the emerging bonds market but we are now looking for opportunities to buy more,” said Haruna.

“Now that the Fed signalled a steeper path for rate hikes in 2018-20, we expect elevated volatility in emerging markets.”

Kampo holds 76.8 trillion yen ($700 billion) of assets under management. Based on its latest disclosure, the life insurer holds 7 trillion yen in foreign bonds.

The Fed raised its benchmark overnight lending rate a quarter of percentage point to a range of 1.75 percent to 2 percent, as expected, on the back of strong U.S. economic growth.

Fed policymakers projected two additional increases by the end of this year compared to one previously, based on board member’s median forecast.

The Fed’s continuous rate hikes has raised worries higher U.S. interest rates could prompt investors to shift funds to the United States and also squeeze dollar borrowers in emerging markets. <MKTS/GLOB>

To view a graphic on Currency reterns YTD, click: reut.rs/2ycaXJc

In particular, currencies suffering from domestic political instabilities, such as the Turkish lira TRY= and the Brazilian real BRL= have fallen sharply.

But many Asian currencies have shown resilience, thanks to robust growth in the region.

Reporting By Tomo Uetake; Editing by Chris Gallagher and Kim Coghill

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