Stung by crippling hedging costs and tempted by higher yields at home, Japan¡¯s life insurers are bailing out of foreign bonds at a record pace.

The cohort offloaded a net ?1.9 trillion ($14.1 billion) of overseas debt in November, an all-time high, according to preliminary portfolio flow data from the Finance Ministry on Thursday. Separate balance-of-payments data for October showed Japanese investors overall were net sellers of U.S., French and German debt.

¡°Life insurers probably took advantage of rising bond prices to cut their holdings,¡± said Tsuyoshi Ueno, a senior economist at NLI Research Institute in Tokyo. ¡°I expect the investment environment to remain unfavorable for life insurers.¡±

Global bonds rebounded in November as investors bet that central banks are getting a grip on inflation.

The cost to hedge positions against swings in the yen has surged this year after the currency slumped to a three-decade low amid a widening yield differential between the U.S. and Japan and the latter¡¯s deepening trade deficit. A three-month hedge against the dollar costs about 4.9%, according to data compiled by Bloomberg.

That has made Treasuries deeply unprofitable for Japanese investors ¡ª the largest overseas holders of U.S. debt ¡ª among whom insurers play a high-profile role.

On a three-month yen-hedged basis, 10-year Treasuries offered a negative return of about minus 1.5% on Wednesday, compared to a yield of almost 1.5% on 30-year Japanese government bonds.

While the yen has already seen a strong rebound from its October low, expectations for further gains make it unlikely Japanese investors will rush back into foreign securities.

¡°Life insurers will be reluctant to buy foreign bonds unhedged considering the rising risk of yen appreciation,¡± said Ueno. ¡°I¡¯m focused on whether they will shift further to yen bonds from foreign debt.¡±