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By Hideyuki Sano and Shinji Kitamura
TOKYO, Oct 31 (Reuters) - Tokio Marine & Nichido Fire Insurance plans to increase its holding of foreign corporate bonds by almost 70 billion yen ($618 million) in the half year to March, senior investment planning officials said on Tuesday.
The firm, which is the main unit of Tokio Marine Holdings , also plans to fully hedge its foreign bond investments against currency changes as the rise in the costs for such hedging has been within their expectations, the officials told Reuters in an interview.
The company bought about 20 billion yen of foreign bonds already in October and is on course to raise its foreign corporate bond holdings by 90 billion yen for the whole year ending in March 2018, they said.
“Corporate bond benchmarks tend to have high weightings on financials. We want a more balanced portfolio so we are making investment to have diversified exposure across the industries,” Shuntaro Take, head of portfolio investment, told Reuters in an interview.
Tokio Marine has been investing mostly in U.S. bonds and plans to stick to that in the six months to March but European bonds could become more attractive next year if their yields rise on reduction in the European Central Bank’s stimulus, Take also said.
The firm will continue to hedge its foreign bond investments against currency movements, despite a rise in the costs in recent months, they also said.
The three-month hedging cost, which is closely linked to U.S. short-term interest rates, has risen to around 2.0 percent from around 1.5 percent about six months ago and about 0.75 percent two years ago.
“We don’t have an appetite for taking currency risks. We have been expecting the hedging costs to rise and their increase so far has been within our expectations,” Masahiro Tajima, manager of investment strategy at the firm, said.
The firm expects the U.S. Federal Reserve to keep raising interest rates but only slowly, possibly twice next year, as inflation is likely to remain contained, officials said.
The insurer is also on track to reduce its domestic stock holdings by about 100 billion yen in the full year to March, they also said.
Many Japanese insurers, including Tokio Marine, have been reducing cross-holding shares for many years.
$1 = 113.2500 yen Reporting by Hideyuki Sano and Shinji Kitamura; Editing by Sanjeev Miglani