Japan Post Insurance Co., along with Fukoku Mutual Life Insurance Co. and Meiji Yasuda Life Insurance Co., has opted to refrain from purchasing domestic sovereign bonds, waiting for an uptick in yields. According to Bloomberg, this decision aligns with the prevailing speculation that the world's last sub-zero interest rate policy might conclude later this year.
The move by these major life insurers to abstain from bond acquisitions for similar reasons raises concerns about potential faltering demand during auctions of super-long debt. Life insurers play a substantial role as buyers in these lengthy tenors.
The Ministry of Finance is set to conduct an auction of ¥700 billion (US$4.7 billion) in the nation’s longest-dated sovereign securities maturing in March 2063. This follows weak demand observed in offerings of 10-year and 30-year debt this month, attributed to diminishing allure amid lower yields. Japan’s 30-year yield declined to 1.77% on Friday, down from a decade high of approximately 1.9% on Nov. 1.
According to the report, Hiroyuki Nomura, senior general manager of the investment planning department, highlighted the possibility of the 30-year yield surpassing 1.8% in the current quarter, factoring in the removal of the negative rate policy.
“Should the yield climb to attractive levels, we can move up the schedule for next fiscal year and accelerate purchases,” he said. “But we are not planning to buy super-long debt at lower yield levels when the nation is about to change the course of monetary policy.”
The downward pressure on local debt yields is influenced by major overseas monetary authorities, including the Federal Reserve and European Central Bank, anticipated to initiate interest rate cuts this year.
While the Bank of Japan is expected to maintain its current stance in the upcoming meeting, economists project a departure from sub-zero rates in 2024 due to persistently high inflation. Official data released on Friday revealed a 2.6% year-on-year increase in consumer prices in December, exceeding the 2% target since April 2022.
Nomura anticipates the central bank to abandon negative rates in April, acknowledging a slim possibility in March. He noted that achieving a move above zero rates necessitates the government’s declaration of the end of the deflationary era, a process that will take time.
Swap markets currently indicate less than a 10% chance of a 25-basis-point rate hike at a January meeting, with a 44% probability in April. These figures compare to 57% in January and 100% in April, reflecting the state of yields around their recent peak on Nov. 1. Additionally, US 10-year benchmark yields reached a 16-year high in late October.
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