Allocation strategy utilizing yen bonds and hedged foreign bonds
Investment in yen-hedged foreign bonds is increasingly gaining Japanese investors’ attention as global central banks have adopted easy monetary policy, which has generated attractive short/long yield differentials and pushed hedging costs lower. However, foreign bond investment focusing solely on yield differentials does not always guarantee outperformance compared to investment in yen-denominated bonds, and determining which strategy is more advantageous can be tricky as it can change over a short period. As such, we believe a flexible approach is effective in adjusting allocations among yen-denominated bonds and yen-hedged foreign bonds. PIMCO’s Global Yen Plus strategy aims to reduce risk and raise returns by implementing timely asset allocations in the broad yen-based bond market (Japanese bonds and yen-hedged foreign bonds). Asset allocations are determined through timely adjustments in independent yen-denominated bond and hedged foreign bond investment, seeking excess returns on two levels: from allocation decisions and investment in each asset class.