HONG KONG: Governments and financial institutions are lining up to sell bonds to Japanese investors as they look to take advantage of record-low yen funding costs in a market that remains isolated from global geopolitical tensions.
BNP Paribas and Svenska Handelsbanken are looking to issue Samurai bonds as early as next month, while Turkey is also mulling a deal that would be guaranteed by the Japan Bank for International Cooperation (JBIC), according to bankers familiar with the plans.
The governments of Kenya, Hungary, Indonesia and Poland are also examining the possibility of issuing sovereign Samurai bonds in the second half of the fiscal year, while a diverse range of Asian issuers are also forecast to come to the yen market, including Development Bank of Mongolia and Export-Import Bank of Korea.
Mexican state-run oil company Pemex is also considering a Samurai issue, treasurer Rodolfo Campos told IFR in July.
The growing pipeline comes as the Bank of Japan’s monetary easing programme has driven yields on domestic bonds to ultra-low levels, pushing more Japanese investors to consider overseas credits in search of higher returns.
The benchmark 10-year Japanese government bond yield touched a 16-month low on Friday at 0.495 percent, while the five-year domestic benchmark for Single A rated issuers hit 0.348% earlier this month, its lowest yield since at least 2010.
The Samurai market, with Japanese language documentation and local conventions, has become a popular alternative for the country’s fund managers. Traditionally reserved for only the highest-rated foreign issuers and short tenors, the range of deals in the pipeline shows the conservative market has begun to open up.
“Investors are more aggressive than they’ve ever been as we are finally going down the credit curve,” said the banker. “This will be a true testament on how aggressive the market is willing to go.”
Samurai issuance in the first four months of Japan’s fiscalyear reached ¥1.1trn ($10.75bn), up 37 percent on the same period last year and at the highest since 2008, according to ThomsonReuters data. Japan’s fiscal year starts on April 1.
Most bankers are expecting deal flow to remain strong as issuers continue to look for alternatives to US dollar debt and Japanese investors look down the credit curve in search of higher returns.
“We may see more than $2bn in yen issuance by the end of September,” said a senior syndicate banker in Tokyo. “Geopolitical risks have been rattling global markets, but we don’t see much of that affecting the Samurai market since we don’t see issuers from Ukraine, Israel or Iraq.”
Borrowers that have tapped the Samurai market so far this year have done so at historically tight spreads, while European borrowers in particular have been able to save on their funding costs in their home markets.
French bank BPCE in July priced its three-year bonds about 13bp inside its euro secondary curve, after swapping the proceeds back to euros.
Reuters
