Sumitomo Life Sticks to Buying Japanese Bonds in Second Half

Sumitomo Life Insurance Co. plans to invest mainly in yen-denominated bonds in the fiscal second half after buying about 800 billion yen ($10 billion) worth of domestic debt in the first half to safeguard returns.

The insurer, which has about 21 trillion yen in assets, will mainly invest in Japanese government bonds with longer maturities in the six months through March 31, said Yoshiteru Hata, deputy general manager at the insurer’s investment planning division. He declined to provide specific figures for the investment plan, citing company policy.

Sumitomo Life is sticking to the relative safety of bonds on concerns that the global economy will remain weak amid Europe’s sovereign debt crisis and as Japan copes with the aftermath of the March earthquake. The government may sell about 1 trillion yen of bonds to fund the rebuilding of areas stricken by the record quake, said two government officials who declined to be identified because the plan isn’t public.

“Japanese government bonds will remain our main investments,” Hata said in an interview in Tokyo yesterday. “We’ve added more than we had expected in the first half on prospects that the yield will come down. We have no intention to earn returns by betting on riskier assets such as equities.”

Sumitomo Life doesn’t have any investments in Portugal, Ireland, Italy, Greece and Spain, Hata said. The five European nations had their sovereign ratings cut.

Japan’s sovereign bonds earned 2.4 percent in the fiscal first half ended Sept. 30, according to Bank of America Corp.’s Merrill Lynch index. The Nikkei 225 Stock Average slumped 11 percent.

Redeeming Hedge Fund

Sumitomo Life expects demand for loans to remain weak, as many higher-rated companies are taking advantage of the strengthening yen to raise funds overseas, Hata said. Loan balance decreased by about 100 billion yen in the first half, according to the insurer.

Holdings of overseas bonds and equities remained unchanged in the fiscal first half and investment decisions will hinge on market moves for the second half, Hata said.

Domestic stock holdings declined in the first half as the insurer redeemed its investment in a fund-of-hedge funds, Hata said. The insurer remains “cautious” about investing in domestic stocks in the second half, while real estate holdings will remain unchanged, he said.

Following are Sumitomo Life’s market forecasts for the fiscal second half through March 2012. The ranges refer to where the insurer expects securities to trade during the period.

                                  Range     March End Projection
Japan’s 10-year bond yields:    0.8% - 1.3%          1.1%
U.S. 10-year note yields:       1.5% - 2.75%         2.5%
Yen against the dollar:           73 - 81             78
Against the euro:                 95 - 115           105
Nikkei 225 Stock Average:      8,000 - 10,000      9,500
Dow Jones Industrial Average: 10,000 - 12,500     11,900