Taiwan ETFs Buy Big Into U.S. Credit
July 22 2019 - 3:48PM
Dow Jones News
By Matt Wirz
One of the fastest-growing sources of investors in U.S. bonds is
Taiwan.
Yield-hungry insurers plowed $3 billion into Taipei-based
exchange-traded funds that buy U.S. fixed income in the last two
weeks of June, according to research by Bank of America Corp. The
surge boosted U.S. fixed-income assets under management in the ETFs
by 16% to $22.5 billion.
U.S.-focused bond ETFs in Taiwan have quintupled in size since
June 2018 when they totaled about $3.7 billion, the research shows.
The buying is likely to continue as Taiwanese insurers can invest
as much as about $65 billion in the ETFs, Bank of America Credit
Strategist Hans Mikkelsen said.
Taiwanese insurers have invested for years in so-called Formosa
bonds issued in the domestic market by foreign corporations and
governments. But local regulators began discouraging the practice
in 2018 because the bonds are primarily denominated in U.S.
dollars, creating a potential currency mismatch for the insurers
because they write most of their policies in Taiwan dollars.
The insurers adapted by pouring capital into shares of locally
managed ETFs that became their proxy buyers of U.S bonds. The trend
accelerated this year as yields on larger swaths of
investment-grade debt in Europe and Japan dipped into negative
territory.
Purchases by Taiwanese funds have boosted ETFs' already
significant ownership of U.S. corporate bonds. ETFs now account for
about 13% of the $21 billion investment-grade corporate bonds
traded on average each day in the U.S., up from 6% in 2017,
according to Bank of America research.
U.S. government-bond yields fell Monday, with the yield on the
benchmark 10-year Treasury note recently trading at 2.043%,
according to Tradeweb, from 2.048% Friday. Yields fall as bond
prices rise. The WSJ Dollar Index, which measures the U.S. currency
against a basket of 16 others, rose slightly to 90.12 from 90.01
Friday.
Write to Matt Wirz at matthieu.wirz@wsj.com
(END) Dow Jones Newswires
July 22, 2019 15:33 ET (19:33 GMT)
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