Japan’s Daido Life Insurance said it would consider buying 10-year Treasuries when yields rise to 2%, from around 1.56% currently, while a major Taiwanese insurer said it would buy when yields approach 1.75%.
The benchmark yield rose as high as 1.776% at the end of March for the first time in 14 months, as investors bet that massive fiscal stimulus amid continued monetary easing in the United States would spark faster inflation than the Federal Reserve anticipates.
But this month, the Fed’s insistence that near-term price pressures will be transitory has soothed the market, with the 10-year yield dropping as low as 1.528% last Thursday.
Still, many market participants expect yields -- which rise when bond prices decline -- to appreciate in the medium term amid increased Treasury issuance to fund President Joe Biden’s spending plans.
“There’s lingering expectations of inflation as the U.S. economy recovers while there are also concerns about oversupply,” said Kenya Takahashi, general manager of investment planning at Daido Life Insurance, who sees the benchmark yield potentially rising to 2.5% over the coming 12 months.
“Considering the risk of a further rise in bond yields, we think it is a bit premature to step up buying of U.S. Treasuries.”
A yield of 2% or higher, however, could spur Daido to buy if it judged the risk of further yield appreciation was limited, he added. The benchmark yield hasn’t been at 2% since August 2019.
Japanese investors have been at the forefront of the Treasuries rout in the first three months of this year.
Foreign selling of Treasuries in February was at its highest since April 2020, with Japan leading the slide in foreign holdings as the end of its fiscal year approached, according to U.S. Treasury data released last week.
Analysts have said they expected Japan to recommence Treasury purchases in its new fiscal year, which began April 1.
But Fukoku Life Insurance, for one, plans to keep holdings of foreign sovereign bonds flat.
“There is risk that the Federal Reserve might change its monetary policy but we basically think that the low interest-rate environment will continue,” said Yoshiyuki Suzuki, Fukoku’s general manager of investment planning.
“Credit products, with their relatively high yields, will be the main focus of our new investments.”
Taiwanese insurers are also now avoiding the Treasury market, a foreign-exchange official at the Taiwan’s central bank told Reuters.
“In March and April, Taiwan’s life insurers bought U.S. Treasuries, but recently they’ve pulled back a bit as the yields have fallen somewhat,” the person said, speaking on condition of anonymity.
An investment manager at a major Taiwanese life insurer told Reuters he was watching the Treasury market “very closely,” and would buy when yields on 10-year notes and 30-year bonds approach 1.75% and 2.5% respectively.
The 30-year yield currently stands around 2.25%.
“Then (we’ll) cash in when the yield is declining,” he said. (Reporting by Kevin Buckland in Tokyo Additional reporting by Daiki Iga and Yoshiko Mori in Tokyo, and Emily Chan and Liang-sa-Loh in Taipei Editing by Peter Graff)