(Bloomberg) — Norinchukin Bank, which suffered heavy losses with its investments in US Treasuries, said it will be “very cautious” about buying Japanese government bonds.
The firm expects further rate hikes in Japan, Chief Financial Officer Masaki Nagano said at a briefing. His remarks come amid a rout in the country’s $7.8 trillion government bond market this week.
Norinchukin’s stance echoes other investors who are scrutinizing the fiscal health of countries from the US to Japan. Yields on US Treasuries are soaring as lawmakers debate a tax cut bill, while Japanese long-term debt has been sold off as the central bank pares its holdings in the face of emerging inflation.
Nochu, as the firm is known, sold ¥17.3 trillion worth of so-called low-yielding assets made up of US and European government bonds as well as investment grade corporate bonds, a presentation showed. The company had ¥1.24 trillion of unrealized losses on bonds at the end of March compared with ¥2.2 trillion a year earlier.
The agricultural lender reported a ¥1.8 trillion loss for the year ended in March, from a profit of ¥63.6 billion a year ago as it dumped billions worth of Treasuries and other foreign bonds. Nochu expects profit of between ¥30 billion to ¥70 billion for the current fiscal year, according to the presentation, sticking to a previous estimate.
Buyers Recoil From Japanese Bonds in Warning on BOJ Tapering
The Tokyo-based bank became one of the most prominent victims of a surge in US interest rates, which drove down the value of its foreign bond holdings, while a jump in dollar-funding costs outweighed returns from these securities. Its massive losses are a stark reminder of the risks posed by otherwise safe-haven assets like Treasuries and other sovereign bonds in time of macro-economic stresses.
The bank is trying to rebuild its ¥40.3 trillion securities portfolio under new Chief Executive Officer Taro Kitabayashi, who took over the reins in April after his predecessor Kazuto Oku resigned to take responsibility for last fiscal year’s losses. Kitabayashi, who has worked at the bank since 1994, was chief financial officer until the end of March.
Kitabayashi is looking at a wide range of other investment assets, as he seeks to bring in non-rates assets to the portfolio. The company is investing in bonds, credit and alternative assets, CFO Nagano said at the briefing.
The bank’s holdings of collateralized loan obligations stood at ¥8.3 trillion as at the end of March, from ¥8.2 trillion three months earlier, as a result of new investments and the currency factor. This accounted for 20% of its portfolio.
–With assistance from Takashi Nakamichi and Russell Ward.
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