Breaking News
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

World’s Biggest Pension Fund Cuts U.S. Bond Weighting by Record

EconomyAug 02, 2021 01:46
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters.

(Bloomberg) -- Japan’s Government Pension Investment Fund made a record cut to the weighting of Treasuries in its portfolio last fiscal year as the world’s safest asset led a global debt selloff.

GPIF, as the world’s biggest pension fund is known, slashed U.S. government bonds and bills to 35% of its foreign debt holdings in the 12 months through March 30, from 47% previously, according to an analysis by Bloomberg of the latest data.

The rebalancing comes with the fund now over a year into a new investment plan that’s reduced dependence on Japanese government bonds and shifted focus toward higher returning equities and overseas debt. Bloomberg’s analysis indicates the shift came largely through boosting holdings of European sovereign bonds, rather than selling Treasuries into a falling market.

While GPIF offers little commentary on annual changes in its portfolios, even small adjustments reverberate through world markets given its total investments of about $1.7 trillion. Some strategists suggested the pension giant may have sought to trim Treasuries because of an extended period of underperformance. Others said this could have been incidental as it moved to reduce risk by aligning weightings with global indexes.

To be sure, GPIF’s Treasury holdings had shot up in the year earlier, particularly in shorter maturities, just as it was mulling the new investment plan. This offers yet another reason -- that extra funds had only been parked temporarily in U.S. bills and notes as a substitute for cash before the fund settled on more permanent allocations.

Read More: How GPIF Bet Big on Front End of Treasury Market

Whatever the motives may have been, GPIF made a 7.1% return on overseas debt last fiscal year, versus 5.4% for FTSE Russell’s World Government Bond Index excluding Japan, which it measures performance against. That represents the strongest result in four years versus the benchmark.

FTSE Russell’s weighting for Treasuries was around 38% as of the end of June, including Japanese debt.

GPIF’s allocations for French, Italian, German and the U.K. bonds all increased by at least 1.7 percentage points in the 12 months through March. Purchases of these securities totaled 5.72 trillion yen ($52 billion) after adjusting for fluctuations in exchange rates and bond prices, Bloomberg’s analysis found.

While the weighting for U.S. bonds fell, GPIF still added about 1.1 trillion yen worth of Treasuries to its holdings last fiscal year, after adjusting for currency fluctuations and bond returns, according to Bloomberg’s analysis. That took its hoard to about 17.5 trillion yen.

Under its five-year investment plan that took effect in April 2020, GPIF aims to split its portfolio evenly between stocks and bonds, with these two asset classes then divided equally between domestic and foreign markets. Japanese government bonds previously had a 35% weighting in total investments.

The changes are paying off, with the return last fiscal year on bonds and stocks combined beating the fund’s composite benchmark for the first time in seven years.

Still, it isn’t possible to fully assess how well GPIF timed its adjustments because the fund doesn’t disclose when during the 12-month period changes took place.

There was enormous movement in bonds over the period, with 10-year Treasury yields largely moving sideways over the first half of the fund’s fiscal year before surging about 100 basis points to around 1.7% in the second half.

The fund’s smaller peers in Japan, which often follow its lead, will scrutinize the latest changes.

“GPIF has a large influence over the investment decisions of other pension funds in Japan,” said Ayako Sera, a market strategist at Sumitomo Mitsui (NYSE:SMFG) Trust Bank Ltd. in Tokyo. “What it does has an impact in the market.”

Looking at the more recent moves, Sera sees the attractiveness of Treasuries dropping even further.

“Current yield levels don’t compensate investors enough to take foreign-exchange risks,” she said.

Treasury Department data show Japanese investors overall have sold a net $24 billion of U.S. government bonds since the start of the Asian nation’s current fiscal year on April 1. They offloaded $35 billion in the 12 months before that, the most in three years.

©2021 Bloomberg L.P.

World’s Biggest Pension Fund Cuts U.S. Bond Weighting by Record

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email