Can It Even Fill the Gap Left by WGBI? Insurers' 'Selective Buying' Emerges as a New Variable for Ultra-Long Bond Yields [fn Market Watch]

[Financial News] Insurers, the largest buyers in the ultra-long government bond market, are shifting to a selective buying strategy and emerging as a new variable for the direction of long-term yields. Analysts say that even if buying pressure from WGBI inclusion flows in, it may be difficult to fully offset the decline in insurance demand.
According to the financial investment industry and iM Securities on the 22nd, insurers are believed to be increasing purchases mainly of newly issued 30-year and 50-year benchmark bonds, such as Treasury bonds 24-11, 22-12 and 26-2, while reducing holdings of maturing issues, such as Treasury bonds 16-8, 24-4 and 25-1, as well as bonds with remaining maturities of six to eight years.
This is being interpreted as a sign that insurers are not cutting back on long-term bond investments, but rather moving from a strategy of buying long-term bonds indiscriminately to one of picking only the more attractive ones.
The shift in insurers' investment approach stems from changes in accounting and prudential regulations. Since the introduction of IFRS 17 and K-ICS in 2023, insurers have rapidly extended duration by buying large amounts of ultra-long government bonds to match the maturities of their liabilities and assets. But with much of that long-bond accumulation now largely complete, analysts say they are entering a new phase in which profitability and liquidity matter as much as duration expansion.
In practice, insurers are buying newly issued benchmark bonds and issues with relatively attractive yields, while replacing older non-benchmark bonds. In other words, the structural demand that once meant 'buy 30-year bonds first' is weakening.
The market is paying close attention because insurers have been the largest buyers in the ultra-long government bond market. They have absorbed a large share of the government's 30-year bond issuance and helped support long-term yields. If selective buying becomes the norm, however, ultra-long yields could face stronger upward pressure than before.
As a result, some say the market's expected WGBI effect could also be partly limited.
“Foreign capital inflows are a factor that increases demand for long-term bonds, but if insurers' structural buying is weaker than before, that could offset some of the effect,” said Kim Myeong-sil, an analyst at iM Securities.
Market watchers say the structural buying cycle for insurers' long-term bonds is entering a mature phase, and the supply-demand structure of the ultra-long government bond market itself is changing. They add that the direction of long-term yields is now likely to be influenced not only by WGBI-related inflows, but also by changes in insurers' asset-liability management strategies.

[email protected] Kim Hyun-jung Reporter