The current slump in US corporate bonds is likely to spur bargain hunting by Taiwan life insurers, reported Bloomberg.
Taiwanese life insurers had NT$785 billion ($26 billion) of bank deposits at the end of January, the most since 2012, according to data compiled by Bloomberg.
Cash positions at Taiwan’s life insurers may be “temporarily higher as of end of first quarter after they took profit earlier this year,” according to Patty Wang, an analyst at Taiwan Ratings. There were around NT$29.8tn ($992bn) in life insurers’ assets as of the end of February, according to data from the Financial Supervisory Commission.
Taiwan’s largest insurer by assets in Taiwan, Cathay Life Insurance, has already stepped into the market. “We have bought US investment grade long-tenor corporate bonds on dips in March, as credit spreads widened a lot,” said Abel Lin, managing senior executive vice president at Cathay Life. “We will continue to add such bonds.”The Federal Reserve’s historic foray into the corporate-bond market was “reassuring” investors, said Mr Lin. As part of its latest round of stimulus measures, the Fed said on 9 April it will fund the purchases of some types of high-yield bonds, collateralised loan obligations and commercial mortgage-backed securities.
“If stock markets stabilise with risk appetite recovering, Taiwan’s life insurers will first add investment-grade corporate bonds on dips,” said Ryan Chang, fund manager at CTBC Investments. “Investment-grade corporate bonds may bottom out after the US Fed provided liquidity to the market — which may prompt the insurers to buy more.”