Japan Pension Funds Quicken Pace of JGB Sales in Quest for Yield

Japan’s public pension funds, which include the world’s biggest, accelerated net sales of domestic government bonds to 1.85 trillion yen ($18.1 billion) in the first three months of this year, central bank data showed.

The 128.6 trillion yen Government Pension Investment Fund and its smaller peers held 6.7 percent of the 998 trillion yen of outstanding JGBs at the end of the period. The funds sold a net 267.5 billion yen of the debt in the fourth quarter of 2013.

GPIF is under government pressure to boost returns as pension payouts surge for the world’s oldest population. The health ministry released a review of the fund’s portfolio allocations this month, paving the way for an expected revamp of its bond-heavy investment strategy. Investors and analysts surveyed by Bloomberg News expect the fund to reduce holdings of domestic bonds, which account for more than half its portfolio, and replace them with Japanese stocks and foreign investments.

Japan’s benchmark 10-year bonds yielded 0.595 percent as of 4:52 p.m. in Tokyo, the world’s lowest level. Equivalent U.S. Treasuries yielded 2.65 percent.

The Bank of Japan purchases 6 trillion yen to 8 trillion yen of government debt each month as it seeks to end 15 years of deflation. The central bank became the largest holder of the debt for the first time in data going back to 1997, with 20.1 percent of outstanding JGBs, outstripping the 19.4 percent portion owned by insurance companies.

GPIF held 55 percent of its assets in local bonds as of Dec. 31, 17 percent in domestic equities, 15 percent in foreign stocks and 11 percent in overseas debt.

The fund will cut its target for Japanese bonds to 40 percent, and increase its target for the country’s shares to 20 percent, according to the median estimate of 10 fund managers, strategists and economists surveyed by Bloomberg News last month.

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