HALISTER1: Sumitomo Life Shuns Treasuries in Favor of Mortgage, Corp Debt

Sumitomo Life Shuns Treasuries in Favor of Mortgage, Corp Debt

(Bloomberg) -- Sumitomo Life Insurance is avoiding U.S. Treasuries in favor of the country’s corporate and mortgage debt due to rising hedging costs and lower sovereign yields.
  • U.S. 10-yr yield may trade between 1.2% and 1.7% over next six mos., vs April est. of 1.4% and 2.6% for this fiscal year, according to Yoshimichi Takahashi, manager of the life insurer’s foreign fixed-income investment section in Tokyo
  • “We can’t buy U.S. Treasuries,” Takahashi said in July 12 interview. “As dollar funding costs have been rising, we need to buy something that has a spread over Treasuries, which leaves us with corporate and mortgage bonds.”
  • Sees yen trading in 98-108 range over the next 3 mos. against dollar, stronger than 100-125 range forecast for this fiscal year projected in April
    • Cost to hedge the dollar-yen position using 3-mos. forward for one year is currently about 1.4% vs 0.5% a year ago, according to calculations by Bloomberg
  • Sumitomo Life Insurance is Japan’s 4th largest life insurer with total assets under management of about $210b
  • Expects Fed rate hike in Dec. followed by cautious stance in raising rates through next year, limiting gains in U.S. yields
  • Sumitomo added investment in non-sovereign bonds during last fiscal year-ended March 2016, as well as New Zealand and Mexican bonds as part of expansion of investment options
  • “We have not considered investing in emerging markets so far, but we are considering them as an option” to seek better returns, Takahashi said
  • Bearish on the euro amid speculation of additional monetary easing; plans to fully hedge investment in euro zone: Takahashi
    • No plans to add investment in the U.K.
  • PineBridge Investments Japan also noted that U.S. Treasuries don’t provide much returns any longer due to rising hedging costs
    • “This is prompting investors to shift to non-sovereign debt,” Kazuya Sugiura, President and CEO of the fund in Japan, said in interview on July 13. “However, such money flows are boosting their volatility significantly, making it hard to see stable returns in credit market.”
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Kazuya Sugiura (Pinebridge Investments Japan)
Yoshimichi Takahashi (Sumitomo Life Insurance Co)

To de-activate this alert, click here

UUID: 7947283