The world’s largest pension fund is in for a big payout at a time when the global economy is slowly sinking into recession. Japan’s Government Pension Investment Fund (GPIF) invested billions of dollars in short term U.S Treasury debt before yields edged to record lows, in the aftermath of the COVID-19 pandemic.
GPIF U.S Treasury Holdings
In the year to March, GPIF had boosted its Treasury holdings to almost 50% of foreign bond portfolios. A good chunk of the amount is concentrated in maturities of three years or less. The fund now has a pile of money to its disposal that it can reinvest even as the COVID-19 pandemic continues to fuel the global recession.
Recent filings indicate that as much as 38.7% of GPIF $152 billion investment is up for maturity in three years or less. The fund has also increased its allocation for foreign bonds to 46.8% from 38.9% as of 2019.
Much of the increase in holdings occurred when the two- and 10-year debts were above 1.5% before plunging to record lows. Similarly, an increase in holdings in U.S treasuries came at the expense of European holdings, which dropped to 27.6% from 31.5%.
It is still unclear how the $1.4 trillion pension fund has invested, or plans tweak its investment portfolio amid the COVID-19 pandemic. While it was among the first into the money market funds, it might as well lead the way out on yield plunging as Central banks opt to keep interest rates at record lows.
Early indication is that GPIF could wait for yields on American bonds to increase and government agency debt to increase to shift some of its holdings. Masahiko Loo of AllianceBernstein Japan believes the Fund might invest in treasuries until it allocates in other assets such as credit.
Given that yields are trading an at all-time lows purchase of U.S corporate debt looks more likely as GPIF looks to add to its $330 billion in foreign bonds. Such a move could have a ripple effect in the market as Japanese funds are known for their appetite for overseas debt.