Fukoku Mutual Life Insurance Co. is planning to use credit-default swaps for the first time to hedge a portion of its USD5 billion fixed-income portfolio. "These can be used to hedge our bond portfolio," said Ichiro Yamada, manager of the international finance department in Tokyo. He continued that the insurer is currently studying the products with a number of investment banks and would look to buy default protection as a way to hedge credit risk on global bonds. Yamada said it would, "Hopefully [take the plunge] in six months but likely within 12."
Yamada noted that Fukoku is in the initial learning stage and that it is too early to comment on potential sizes of investments. The insurer would only be permitted, by internal rules, to use credit derivatives as hedging tools, he said.
