Japan’s top debt underwriters are forecasting another robust performance in corporate and Samurai bond sales for the fiscal year starting in April, regardless of the central bank’s policy decisions. According to Bloomberg-compiled data, borrowers have issued a record ¥16.6 trillion ($112 billion) in yen-denominated bonds in the year ending March 31. A Bloomberg survey of Japan’s top five brokerages indicates that next fiscal year, the total bond issuance is expected to remain high, ranging between ¥15.5 trillion to ¥17.6 trillion.
Despite expectations of the Bank of Japan raising interest rates for the first time since 2007, market rates suggest strong demand for yen bonds. Yield premiums on corporate notes have tightened to 52 basis points, the lowest level since September 2022, as indicated by a Bloomberg index. Factors such as still-cheap borrowing costs, refinancing needs for utilities, and funding for major mergers and acquisitions are likely to drive new bond deals, as revealed in the survey.
Hisashi Kawada, executive director of debt capital markets at Nomura Securities Co., noted that the market has already factored in the lifting of negative interest rates to some extent, which may not significantly impact the credit market. Masahiro Koide, joint head of the products business division at Mizuho Securities Co., expects stable long-term interest rates, contributing to tighter spreads, supported by strong corporate earnings.
However, there is cautiousness among bankers regarding the potential risk of faster-than-expected BOJ rate hikes, which could lead to firms pausing or canceling deals. Market players are also monitoring the use of covenants by issuers to protect bondholders, which may influence the sales of high-yield notes.
Jumpei Nagura, a credit strategist at Mitsubishi UFJ Morgan Stanley Securities Co., highlighted the importance of monitoring bonds offering covenants in Japan, especially in the low-rated corporate bond market. Noritaka Oda, general manager of debt syndicate at SMBC Nikko Securities Inc., anticipates an increase in demand for yen bonds if negative rates are lifted, potentially attracting sidelined investors back to the market.
In conclusion, the bond market in Japan is poised for continued activity and potential shifts following the BOJ’s anticipated rate hike, with implications for different bond types and investor preferences.
