Japanese insurers sold domestic superlong bonds as yields soared

Japan’s insurers sold domestic superlong government bonds in May, reversing course from the start of the fiscal year as yields climbed to multidecade highs.

Local insurers sold a net ¥201.2 billion ($1.25 billion) of Japanese sovereign debt due in more than 10 years, according to the latest Japan Securities Dealers Association data. The selling partly offset the ¥327.2 billion they bought in April, the first month of Japan’s fiscal year.

While Japanese government bonds saw yields rise to multiyear highs in May, the attractiveness has been offset by concerns that the Bank of Japan is unlikely to tighten monetary policy quickly enough to contain inflation. Adding to the worries are Prime Minister Sanae Takaichi’s expansionary fiscal policy and her preference for monetary easing.

“Yields rose a lot in May and volatility was high, which likely led investors to take a wait-and-see approach,” said Miki Den, a senior interest-rate strategist at SMBC Nikko Securities. “April was an usual pattern since it was the start of the fiscal year and investors may have had more room in their budgets.”

Meanwhile, proxies for Japanese pension funds bought the largest amount of the nation’s government bonds in almost two years last month.

“Whether life insurers continue to sell superlong JGBs depends on future interest-rate trends,” said Ryutaro Kimura, a senior bond strategist at BNP Paribas Asset Management.

If the 30-year Japanese government bond yield were to exceed 4.5% from its current level of about 3.9%, “life insurers would face a significant risk of impairment losses, making it highly likely that they would proceed with further bond sales,” he said.