Alico Japan to Increase Corporate Bond Assets, Avoid Treasuries
9th June, 2008
June 9 (Bloomberg) - Alico Japan, a branch of American Life Insurance Co., said it will increase holdings of corporate bonds and avoid Treasuries as it seeks to raise returns.
The Tokyo-based company, which manages about 6.6 trillion yen ($63 billion) in assets, plans to buy 100 billion yen in Japanese bonds and purchase 400 billion yen in foreign debt by the end of November, Eiji Kawasaki, the company's vice president and chief investment officer, said in an interview on June 6. Alico favors Japanese bonds over Treasuries because U.S. yields ``are too low,'' according to Kawasaki.
``We will increase assets focusing on corporate bonds, which accounts for the majority of the planned 100 billion yen investment'' in domestic debt, Kawasaki said.
Increasing demand for higher returns is reducing the yield differential between corporate bonds and government debt, according to Calyon Securities. The yield on five-year AA-rated Japanese industrial corporate bonds narrowed to 28 basis points above government debt on June 6 from 33 basis points on April 11, according to data compiled by Bloomberg.
``Some spreads may be attractive,'' said Susumu Kato, the chief economist in Tokyo at Calyon. ``So the demand for corporate bonds is rising.''
The cost of protecting Japanese bonds from default may decline to as low as 50 basis points in the next three months, said Yasuhiro Matsumoto, a credit analyst at Shinsei Securities Co. in Tokyo. The Markit iTraxx Japan index rose 12 basis points to 96 basis points in Tokyo, according to prices from Credit Suisse Group AG.
Foreign Bonds
More than 60 percent of Alico's total assets are foreign securities, which total about 4 trillion yen, according to the company. Of overseas assets, about 3.6 trillion is in dollar- denominated assets and the rest is in euro-denominated and Australian-dollar securities, Kawasaki said.
Alico plans to focus on Japanese government bonds with at least 10 years to maturity, Kawasaki said. Alico cut holdings of Japan's government bonds by about 42 billion yen last year from the preceding year, while boosting corporate debt holdings by about 884 billion yen, the company's financial statements show.
Government bonds in Japan have handed investors a loss of about 0.1 percent in the past two weeks, compared to a 0.2 percent loss for holders of Treasuries, according to indexes compiled by Merrill Lynch & Co.
Yield Forecasts
Japan's 10-year government bond yields will range between 1.6 percent and 2.2 percent by the end of November as the Bank of Japan is likely to keep interest rates unchanged at 0.5 percent, said Shintaro Yoshida, manger of the securities investment department at Alico. Ten-year bond yields fell 7 basis points to 1.725 percent today.
The Federal Reserve will probably boost its interest rate by a quarter-percentage point to 2.25 percent and the European Central Bank will probably raise rates this year, Yoshida said.
Nippon Life Insurance Co., Japan's biggest life insurer, in April said that it plans to buy 400 billion yen in domestic debt this fiscal year. Dai-ichi Mutual Life Insurance Co., the second largest, also said it plans to hold long-term Japanese bonds and foreign stocks.
Source :http://www.bloomberg.com/ |
