BOJ stimulus cash fuels KDB’s Samurai bond saleKorea Development Bank’s Samurai sale yesterday pushed offerings to the highest level in six months as issuers took advantage of a hunt for yield from local investors flush with cash from Bank of Japan stimulus.
Korean lender Rabobank Nederland and Nordea Bank AB raised 222.7 billion yen ($2.2 billion) in May, compared with no sales in the previous three months and 224 billion yen in November, according to data. The 0.99 percent average yield on yen bonds of foreign issuers is more than the 0.69 percent paid by Japanese corporates and less than the 2.59 percent for company notes worldwide, Bank of America Merrill Lynch index data show.
BOJ Gov. Haruhiko Kuroda’s plans to double the monetary base are supporting demand for equities and higher-yielding company debt. Sustained demand for corporate bonds has been tested by the widest expectations for price swings in benchmark 10-year bonds in four years and the central bank met with market participants yesterday to exchange views.
“Samurai bonds, which excel in spreads, are in strong demand from investors seeking to secure a steady income,” Kyoko Kaji, a Tokyo-based credit analyst at Nomura Holdings, the biggest Samurai underwriter so far this year, said in a telephone interview. “The market is running out of available Samurai notes.”
The yield premium on Samurai bonds declined eight basis points this year to 58 basis points yesterday, Bank of America Merrill Lynch index data show. The spread on Japanese company debt fell 13 basis points to 21.
Korea Development Bank raised 30 billion yen of Samurai bonds yesterday, the lender’s fist offering of yen-denominated debt in Japan since June, according to data compiled by Bloomberg. The sale comprised 20 billion yen of 0.54 percent two-year notes, 3.5 billion yen of 0.66 percent three-year securities and 6.5 billion yen of 0.89 percent five-year debt.
Rabobank’s 101.5 billion yen Samurai offering on May 17 ended a three-month drought in the market, with no issuers selling since Woori Bank’s offering on Jan. 30, according to data compiled by Bloomberg. Nordea was the second issuer this month, selling 91.2 billion yen of the bonds yesterday.
Japan’s benchmark 10-year yield fell 3.5 basis points, or 0.035 percentage point, to 0.9 percent as of 11:31 a.m. in Tokyo today. The rate swung between a record low of 0.315 percent on April 5, the day after the Bank of Japan unveiled its stimulus plan, to as high as 1 percent last week.
Implied volatility of 10-year note futures, a measure of expected moves used to price options, climbed to 7.96 percent yesterday, the highest since November 2008, according to data.
“For issuers, high volatility makes it difficult to evaluate borrowing costs,” Yusuke Ikeda, a Tokyo-based analyst at Bank of America Merrill Lynch, said in a telephone interview. “Some bond sellers may adopt a wait-and-see approach, but even those would have to decide eventually.”
Market participants meeting with BOJ officials in Tokyo on Wednesday said the BOJ should increase buying of one-to-five year notes and suggested smaller purchases at each operation.