Japanese life insurers are signaling they will maintain or increase purchases of domestic bonds in the second half of the fiscal year, offering a potential source of support for upcoming government debt auctions.

Japan Post Insurance Co. said it intends to increase purchases of yen-denominated bonds without specifying which ones, while Daido Life Insurance Co. has raised its planned increase in domestic bond holdings, mainly through corporate debt. Meanwhile, Meiji Yasuda Life Insurance Co. plans to keep its government bond holdings roughly unchanged while switching out of lower-yielding debt into higher-yielding securities.

The plans add to signs that demand from one of Japan’s most important groups of bond investors is beginning to recover. Insurers have been net buyers of super-long JGBs for the past four months, according to Japan Securities Dealers Association data, a trend strategists say could provide a firmer anchor for upcoming auctions.

“Life insurers appear likely to revise up their appetite for JGBs in the second half,” said Stephen Spratt, a strategist at Societe Generale SA. “Domestic demand is beginning to pick up and this comes against the reduced size in super-long auctions.”The shift comes as higher yields alter the investment calculus for Japanese institutions after years of ultra-low rates pushed them toward overseas and riskier assets. Super-long JGB yields have recently approached multi-decade highs, increasing the appeal of domestic debt even as investors remain wary that rates could climb further.

Life insurers are particularly important buyers of longer-dated government bonds because they use them to match long-term liabilities. Their demand has traditionally been concentrated in the super-long sector, making their investment plans closely watched as the government seeks buyers for its debt while the Bank of Japan reduces its presence in the market.

Signs of improving demand were evident at Tuesday’s 20-year JGB auction, which drew the strongest bid-to-cover ratio on record. The result suggested elevated yields are enticing buyers even after a global bond selloff driven by escalating tensions in the Middle East, higher oil prices and concerns over inflation and government borrowing.

Japanese insurers have about ¥386 trillion ($2.4 trillion) of invested assets, according to end-July data from the Life Insurance Association of Japan, meaning even incremental changes in their allocations can have implications for domestic and overseas markets.

Risks remain from the possibility of a second supplementary budget under Prime Minister Sanae Takaichi, the fiscal 2027 initial budget and the outlook for BOJ policy, said Homin Lee, senior macro strategist at Lombard Odier. Even so, auctions are likely to find “a slightly better anchor in the next few weeks” as the outlook for supply becomes clearer and demand stabilizes, he added.

Relative stability in the yen may also have encouraged investors to add JGB exposure given attractive absolute yields and a steeper curve, according to Justin Heng, APAC rates strategist at HSBC Holdings Plc. “In our view, this period of relative calm in the JGB market could persist for a while longer.”