KDB sells Samurai bonds at an all-time low cost

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KDB sells Samurai bonds at an all-time low cost

Korea Development Bank sold fixed-rate Samurai bonds in Japan at the lowest cost ever for a Korean issuer, a contrast to the U.S. market where investors are increasingly seeking protection from higher yields.

KDB issued 50 billion yen ($478 million) in yen-denominated debt on Jan. 21, including two-year securities with a yield of 0.43 percent, the least ever for a Korean Samurai, according to a statement by the state-owned lender. Korean banks have dominated sales of dollar floating-rate notes this year in Asia as an expected cut in U.S. Federal Reserve stimulus drove the biggest gain in 10-year Treasury yields in four years in 2013.

Bank of Japan Governor Haruhiko Kuroda’s pledge to keep pumping cash into the economy until inflation stabilizes at 2 percent pushed average borrowing costs for overseas lenders to a record low of 0.714 percent last month, according to Bank of America Merrill Lynch data. Japanese investors are snapping up Korean debt even after Prime Minister Shinzo Abe’s visit to a shrine in Tokyo for the war dead last month worsened political tensions between the two East Asian nations.

“U.S. investors are more concerned about rising interest rates, but the Japanese market is totally different,” said Takaomi Tahara of the international debt syndicate in Tokyo at Nomura Holdings, which helped manage KDB’s sale. “For the time being nobody believes the yen interest rate will go up and that is why investors are happy to look at shorter fixed yen tenors.”

KDB is the third overseas company to issue Samurai bonds this month, following sales by Melbourne-based National Australia Bank and a unit of Norway’s largest bank, DNB ASA. NAB, rated AA- by Standard & Poor’s, borrowed 123.8 billion yen in a three-tranche deal, including five-year fixed debt sold at premium of three basis points over yen swaps. A basis point is 0.01 percentage point.

The Australian lender joined DNB in returning to the Samurai market after an absence in 2013, when total sales dropped for a second straight year. Issuances by Korean borrowers and Australian issuers fell a combined 307 billion yen in 2013.

“There is strong demand for Samurai among Japanese investors who have few places to put their money,” said Yutaka Ban, the chief credit analyst at SMBC Nikko Securities, a unit of Japan’s second-largest bank. “Spreads are extremely tight whether the borrower has a high or lower rating.”

Investors expect the 10-year U.S. Treasury yield to rise to 3.4 percent by the fourth quarter of this year from 2.87 percent today, as the Fed reduces bond buying, according to the average forecast of economists surveyed.

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