The nation’s biggest life insurer and South Korea’s largest financial company will follow Japan’s No. 3 banking group in buying more eurozone bonds, taking advantage of Italian yields five times higher than those in Taipei.
Cathay Life Insurance Co (國泰人壽) plans to invest in Italian and Spanish sovereign debt as their coupons are “attractive” after Greece won more bailout funds this week. Seoul-based Woori Investment & Securities Co is researching auctions, seeking to profit from further gains in notes of the single-currency region. Mizuho Asset Management Co in Tokyo bought Italian and Spanish notes last quarter.
Japanese buyers of overseas bonds are having the busiest start to a year since 2005, South Korean foreign-debt holdings rose to the highest in four years at the end of last year and Taiwan Life Insurance Co (台灣人壽) said last month it is looking abroad for higher-yielding investments. Five-year notes yield 4.28 percent in Italy, 3.73 percent in Spain, 3.57 percent in South Korea, 0.94 percent in Taiwan and 3.16 percent in China.
“We are considering allocating funds to sovereign debt in countries like Italy and Spain,” said Allen Lee (李偉正), the Taipei-based deputy manager of high-grade sovereign debt at Cathay Life who oversees about US$95 billion. “Their yields are attractive, especially if the contagion risk of Greece’s problems are declining. The sell-offs in Europe give us opportunities to buy.”
Italian notes returned 17 percent in 2012, second only to Hungary among 26 markets tracked by the European Federation of Financial Analysts Societies.
European finance ministers this week agreed to arrange 130 billion euros (US$173 billion) in financial aid to Greece, Italy passed 20 billion euros of budget reductions in December, while Spain’s parliament approved a 15 billion euro package of spending cuts and tax increases last month. The European Central Bank has started an unprecedented emergency lending program.
Eurozone bonds have outperformed Asian notes this year. Five-year Italian yields slumped 192 basis points, or 1.92 percentage points, Spanish yields 42 basis points, and Taiwanese yields five basis points. In South Korea they rose 11 basis points and in China yields gained 13 basis points.
Woori Investment is monitoring bond auctions in Germany, Spain, Italy and France, and “may invest if prices match our expectations,” according to Lee Jeong-bai, the Seoul-based team head of fixed-income investment who oversees 1 trillion won (US$888 million).
“There is further room for European bond prices to rise,” he said in an interview on Feb. 13.