The market for yen bonds from global firms is hotter than it’s been in years, providing money managers with an oasis as rates volatility soars.
(Bloomberg) — The market for yen bonds from global firms is hotter than it’s been in years, providing money managers with an oasis as rates volatility soars.
Investors have scooped up yen debt from issuers outside Japan, fueling the busiest July since 2018. Deals have included Canada’s Toronto-Dominion Bank, Korea Investment & Securities Co. and France’s BPCE SA, which priced the biggest institutional offering since 2019 in the Samurai market.
That’s brought the tally since the start of the fiscal year on April 1 to ¥1.44 trillion ($10.2 billion), the most in five years. And there’s more in the pipeline: Korean Air Lines Co. plans to issue a yen note this week, while that nation’s government intends to sell its first yen bond in Japan later this year.
The securities on average are outperforming their local peers, when all yen corporate notes have made 1.2% so far this year, the best returns for that period since 2012.
That’s all helping burnish the asset class at a time when rates markets are signaling expectations that the Bank of Japan may need to tweak policy as inflation remains above its target, even as Governor Kazuo Ueda has repeatedly made the case for maintaining monetary stimulus. Still, BOJ officials see little urgent need to act on the effects of yield curve control for now, people familiar with the matter said last week.
Another appeal is wider spreads compared with Japanese issuers, to compensate for local investors having less analysis at their fingertips on the foreign borrowers. That’s despite the companies often having comparable or better ratings.
“Overseas yen bonds are a sector that have a larger spread cushion than domestic notes,” and so would be less affected by any change to YCC, said Haruyasu Kato, a fund manager at Asset Management One. Kato has purchased yen notes of non-Japanese issuers this year.
Yen assets have contended with volatility recently, with the Japanese currency surging and the 10-year government bond yield moving toward the BOJ’s ceiling. But through it all, overseas issuers have kept tapping the market and bankers see no let-up ahead.
“Momentum to tap the yen market is strong as spreads are relatively stable at a low level,” said Masahiro Koide, joint head of the products business division at Mizuho Securities Co., the largest underwriter of overseas yen bonds in 2023. But if the BOJ were to tweak its yield-curve control, causing a jump in yields, that may keep investors on the sidelines for a period, he said.
Buffett’s Approval
For now, part of the attraction of selling yen bonds for some issuers has been the increased attractiveness of Japanese assets as the BOJ has so far stuck with its accommodative monetary policy, even as the Federal Reserve and European Central Bank have tightened. For other borrowers, the importance of diversification of funding channels has played a key role.
Warren Buffett caused a media flurry when he visited Japan in April to meet with corporate executives as Berkshire Hathaway Inc. was marketing yen debt. The company, which has become the largest overseas issuer of yen notes since its debut deal in 2019, said in June it increased its holdings in Japanese trading houses after the bond sale. Buffett isn’t alone in having a bullish outlook for Japanese assets, with the nation’s stocks hovering near a more than three-decade high.
Berkshire’s five-year note sold this year had a coupon more than three times than on a similar-tenor Toyota Motor Corp. bond priced the following month. The US firm has higher credit scores from S&P Global Ratings and Moody’s Investors Service.
More yen bond sales have come as “increased volatility due to the rapid rise in interest rates last year had a major impact on the issuance environment in overseas bond markets,” said Noriaki Nomura, head of debt capital markets division at Mitsubishi UFJ Morgan Stanley Securities Co.
–With assistance from Ayai Tomisawa, Takahiko Hyuga and Daedo Kim.
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