Spare a thought for Japan’s yield-starved investors.
Not even three months into a new fiscal year, a gauge of global bond yields has slumped to the lowest since 2017 and the yen has strengthened against almost all its major peers. Assumptions made when investment plans were released in April are being rapidly reworked.
A shift to longer-maturity bonds, increased appetite for currency risk and greater weighting for overseas corporate credit are all possibilities as expectations the Federal Reserve is poised to cut interest rates pummels the yield available from traditional investments such as Treasuries.
The heightened prospect of the Fed cutting rates this year has forced insurers to amend their plans, slowing the pace of their investment flows, says Eiichiro Miura, general manager in Nissay’s fixed income investment department in Tokyo.
Right now, the uncertain currency outlook is keeping investors sidelined even if they want to invest overseas, Tokyo-based chief strategist Shigeki Sakaki says.
Current yield levels and their rapid decline since May makes it hard to invest in Treasuries or other US bonds without currency hedging, says senior investment manager Shinji Hiramatsu.