The idea of the United States defaulting on its debt spooks investment strategists, but AllianceBernstein Chief Investment Officer Doug Peebles is already talking about how Japan’s Ministry of Finance might eventually restructure Japan’s sovereign debt.
Peebles sketched out a possible Japan sovereign debt restructuring strategy today in New York, at an insurance conference organized by S&P Global Ratings. The moderator of a panel discussion for chief investment officers asked for the panelists’ thoughts on non-U.S. investments.
In Japan, the ratio of national debt to gross domestic product is about 250%. That compares with a debt-to-GDP ratio of about 105% in the United States.
Peebles said Japan will eventually have to default on the debt, use inflation to wipe the value of the debt away, or somehow restructure the debt.
The Bank of Japan, Japan’s central bank, has been buying about 70% of all newly issued Japanese government bonds in recent years. Peebles said he thinks that’s a sign that Japan’s Ministry of Finance wants to find a way to restructure the debt.
If Japan had a significant number of large bond holders outside of Japan, restructuring the debt might be complicated, but, in this case, “they owe themselves the debt,” Peebles said.
When a country’s own residents hold most of the national debt, “it actually doesn’t have to burst,” but a high debt load will hold down economic growth, Peebles said.
One way Japan could restructure its debt would be to replace some or all of the bonds now outstanding with bonds designed to pay off over the course of 100 years, Peebles said.
Peebles’ company, which has about $500 billion in assets under management, is owned by AXA S.A., a large, Paris-based insurer. AllianceBernstein’s clients include insurers.
Peebles appeared on the S&P insurance conference chief investment officer along with Eric Kirsch, the chief investment officer at Aflac Inc., and Lisa Longino, health of U.S. global portfolio management for MetLife Inc.