Japanese insurance company Dai-ichi Life Insurance Co. has lost around $890 million as it sold bonds with longer maturities in preparation for the rise in interest rates, according to a report by Bloomberg.
According to the report, the insurer had sold ¥500 billion (US$3 billion) in the first half of the fiscal year mainly on 20- to 40-year bonds. Dai-ichi Life Insurance Co. president Toshiaki Sumino told Bloomberg that the sales during the time period were concentrated and would become more restrained in the next half.
“We will continue to carry out replacement operations while paying attention to the impact on profits and losses. I don’t think the loss will have any impact on our financial soundness,” said Sumino.
The executive shared his expectation of the Bank of Japan raising the rates this month, following Japan’s economy staying on the path towards recovery. The policy board had announced that the rates would not be changed in December as Bank of Japan Governor Kazuo Ueda waited to assess what US President-elect Donald Trump will be doing as he returns to office later this month.
“I have some doubts about whether we can maintain an inflation rate of 2%,” said Sumino, adding that he expected the upper limit for 30-year bonds to be around 2.5%, with 10-year bonds seeing 1.5%.
As the US economy showed signs of being more resilient, bond yields all over the world have been rising. The current data of the US, which includes factors such as low jobless claims, heavy corporate bond sales, and rising oil prices, have contributed to the expectations that the economy’s strength may prevent any more interest rates changes by the Federal Reserve.
Notably, December saw the benchmark US 10-year Treasury yields rise 40 basis points to 4.569% and has later climbed to 4.626%.
Tomoichiro Kubota, a senior market analyst at Matsui Securities Co., pointed out what the data entailed in terms of the interest rates.
“It’s hard to say that interest rates have hit their ceiling at the current level, so it’s likely that realized losses on bonds due to rising interest rates will continue in the future,” said Kubota.
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