GPIF Weighs $62B U.S. Treasury Sale Amid Yen Rate Hike Bets

The Government Pension Investment Fund (GPIF), Japan's $2 trillion pension fund, may sell up to $62 billion in U.S. Treasuries as it considers trimming its foreign bond holdings. According to a client note from Santander, the GPIF could begin reducing its foreign bond holdings in the coming months without waiting for a formal strategic asset-mix review.

The note was overseen by Antonio Villarroya, who runs the bank's fixed income, currencies and commodities strategy globally. He argues that the GPIF does not need to rewrite its playbook to pare foreign bonds, especially if the Bank of Japan is successful in reversing the weakness of the yen through back-to-back rate hikes.

The GPIF's policy target is 25% in foreign bonds with a five percentage point band on either side. Santander modeled a shift from where the fund sits today down to 20% of the portfolio, which could result in up to $62 billion in U.S. Treasury sales.

Last month's out-of-the-ordinary meeting of GPIF leadership kicked up talk that the fund might tilt away from overseas debt and toward Japanese bonds. Health Minister Kenichiro Ueno, who has oversight of the fund, said officials are still considering whether an asset mix review is necessary.