Japan’s Public Pension Fund Suffers Biggest-Ever Bond Losses

Japan’s Government Pension Investment Fund, the world’s largest manager of retirement savings, posted its smallest gain in three quarters in the period ended June on record domestic bond losses.

GPIF, which has 121 trillion yen ($1.24 trillion) in assets, earned a 1.9 percent return last quarter compared with a 6.9 percent gain in the prior three months, according to a statement on its website today. Market investments in Japanese bonds fell 1.5 percent while domestic stocks jumped 9.7 percent, the fund said. Losses on local bonds were wider than the previous record quarterly decline in 2008, said Tokihiko Shimizu, director general of the research department at GPIF.

“Returns from domestic stocks and overseas bonds and equities compensated for the loss in domestic bonds,” Shimizu said in a telephone interview today. “Diversifying our assets was effective.”

The Tokyo-based pension manager said in June it would reduce its allocation to local bonds, which comprised 60 percent of assets at the end of that month, as it seeks higher-yielding investments amid Prime Minister Shinzo Abe’s bid to stoke inflation. Japanese government securities lost 1.8 percent last quarter, according to a Bloomberg World Bond Index.

The debt has since rallied, with the yield on the 10-year sovereign note sliding 13.5 basis points since June to 0.72 percent today, the lowest rate worldwide. The Topix index has dropped 2.5 percent in the same period.

GPIF’s investment income of 2.21 trillion yen last quarter was the smallest since the three months ended September 2012, the statement shows.

The fund’s international bond investments gained 4 percent and overseas stocks returned 6.1 percent, according to the statement. The fund said 16 percent of its assets were in domestic stocks as of the end of June, while foreign equities accounted for 13 percent. International bonds made up 10 percent.

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