April 26, 2018 / 9:10 AM / 4 months ago

UPDATE 1-Nippon Life to raise foreign bonds holdings without FX hedge in 2018/19

* Expects over 1 trln yen of new funds for investment in 2018/19

* Plans to spend 400 bln yen new money on unhedged foreign bonds

* To shift to credit products from Treasuries

* Plans to increase holdings of foreign stocks, including PE (Adds comments, details on currency hedging)

By Tomo Uetake

TOKYO, April 26 (Reuters) - Nippon Life Insurance Co plans to increase its holdings of foreign bonds without currency hedging, while reducing those with currency hedging in the year through March 2019, senior company officials said on Thursday.

Nippon Life expects to have more than 1 trillion yen ($9.2 billion) of new funds to put to work in the current financial year and will invest about 400 billion yen in such unhedged foreign bonds, they added.

Japan’s biggest private life insurer also plans to shift towards credit products from Treasuries within the currency-hedged U.S. debt space, Naoki Akiyama, general manager of finance and investment planning, said at a news conference on Thursday.

“Rising hedging costs for U.S. dollar investments has been a headache for us and we think this will likely persist as the U.S. Federal Reserve is hiking interest rates,” said Akiyama.

The cost for dollar hedging is closely tied to dollar interest rates and has been rising sharply in recent quarters due to the Federal Reserve’s rate hikes.

The three-month hedging cost stands at 0.70 yen per dollar , or about an annualised 2.6 percent. That means buying 10-year U.S. Treasuries yielding 3.00 percent with currency hedging leaves Japanese investors with a meagre return of 0.4 percent.

Higher hedge costs have prompted many investors, including Nippon Life, to buy higher-yielding and riskier bonds.

“Although there are signs of overheating in U.S. credit markets, with historically tight spreads, we will carefully select corporate bonds in order to avoid risks associated with credit events,” Akiyama said.

The insurer, one of Japan’s biggest institutional investors with total assets of 67 trillion yen, also plans to increase its holding of foreign stocks, including private equity funds.

It remains reluctant to buy domestic bonds, whose yields have been stuck at lows due to the Bank of Japan’s aggressive easing steps.

Nippon Life said any full-fledged buying in super-long JGBs will start only after 20- or 30-year bond yields rise to 1 percent or above, Akiyama added.

Yields on 20-year JGBs, a tenor of choice for Japanese life insurers, are currently around 0.540 percent.

The insurer plans to be more committed to sustainable finance and investment such as green bonds and other Environment, Social, and Governance (ESG)-labelled projects, officials said.

$1 = 109.34 yen Reporting by Tomo Uetake, Editing by Sherry Jacob-Phillips

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