Renault Samurais Beat Mazda as BOJ Cutting Yields: Japan Credit

Renault Samurais Beat Mazda as BOJ Cutting Yields
The Bank of Japan’s plan to buy 35 trillion yen ($418 billion) of assets to reduce borrowing rates may be helping France’s Renault SA more than Mazda Motor Corp. Photographer: Tomohiro Ohsumi/Bloomberg

The Bank of Japan’s plan to buy 35 trillion yen ($418 billion) of assets to reduce borrowing rates may be helping France’s Renault SA more than Mazda Motor Corp.

Sales of yen-denominated Samurai bonds by borrowers outside Japan jumped 34 percent this year to 1.74 trillion yen, the most since 2007, according to data compiled by Bloomberg. The yields on the notes compared with government debt dropped 13 basis points to 89 since the central bank said it would buy corporate bonds on Oct. 5, according to Nomura Securities Co.’s Bond Performance Indexes. The gap for domestic company notes narrowed two basis points to 28.

“The BOJ’s easing policy benefitted foreign borrowers rather than the Japanese,” Mana Nakazora, chief credit analyst at BNP Paribas Securities Co. in Tokyo, said in a telephone interview. “Investors are rushing to get relatively richer spreads.”

The central bank’s December Tankan report today showed business confidence slumped for the first time in seven quarters amid growing concern the economy’s year-old recovery is petering out. The spread on Boulogne Billancourt-based Renault’s 2013 Samurai bonds fell 61 basis points since Oct. 5, compared with a 25 basis-point drop on similar-maturity debt from Hiroshima-based competitor Mazda, Bloomberg data show.

Renault Bonds

Renault’s 2.09 percent Samurai bonds due January 2013 yield 212 basis points more than similar-dated Japanese government debt. The maker of Clio and Espace autos sold 45 billion yen of two-year, 1.95 percent bonds on Dec. 3 in its first Samurais since January 2008. The relative yield on its 800 million euros ($1.07 billion) of 4.375 percent bonds due 2013 slid 28 basis points to 220 since Oct. 5, according to Bloomberg data.

Mazda’s 1.65 percent yen bonds maturing March 2013 trade at a 40 basis-point spread, the data show. Rating and Investment Information Inc. ranks Renault at BBB+, its third-lowest investment grade, and Mazda one step lower at BBB.

Yen securities sold by companies from Bentonville, Arkansas-based Wal-Mart Stores Inc. to Westpac Banking Corp. in Sydney are benefiting from demand for higher yields than on Japanese corporate debt. The nation’s households have saved 1,445 trillion yen, according to a Sept. 17 BOJ report, with much of it in stored deposits that pay almost zero interest.

Limited Scope

“Japanese corporate bonds don’t have spreads to tighten in the first place,” said Yoshihiro Nakatani, a senior fund manager at Asahi Life Asset Management Co. in Tokyo, who helps manage 70 billion yen of assets. “So, money is going toward Samurai bonds, lowering their spreads.”

Company bonds are outperforming government debt this quarter after the BOJ said it would buy 500 billion yen of corporate debt rated BBB or higher. The central bank was offered 269.8 billion yen of bonds when it bought 100 billion yen in a Dec. 3 auction.

The BOJ also said it would expand purchases of government debt by 3.5 trillion yen. Yields on benchmark bonds are heading toward the biggest quarterly increase since June 2008 on optimism about a global recovery. The yield on the 1.2 percent 10-year bond due December 2020 rose to 1.25 percent yesterday from 0.93 percent on Sept. 30.

Investors in Japanese corporate bonds lost 0.9 percent since Sept. 30, less than the 2 percent drop for government debt, according to indexes compiled by Bank of America Merrill Lynch. Buyers of U.S. company debt lost 2.1 percent as of Dec. 13, while Treasuries slid 2.7 percent, the indexes show.

Buying Indonesia

Asahi Life’s Nakatani said he’s selling higher-rated domestic securities and buying Indonesia’s 10-year sovereign Samurai bonds because “the yields are so different.”

Indonesia sold 60 billion yen of 1.6 percent bonds on Nov. 4 priced to yield 55 basis points more than the yen swap rate, according to data compiled by Bloomberg. The debt is partly guaranteed by the Japan Bank for International Cooperation.

The yields on Japanese corporate bonds averaged 0.97 percent yesterday versus 1.37 percent on Samurai bonds, according to Nomura indexes.

Japanese borrowing costs dropped to the lowest in the world because of deflation. The difference between yields on five-year Japanese government notes and inflation-linked debt, a gauge of investor expectations for price changes, expanded two basis points yesterday to minus 0.69 percent. Deflation, an extended decline in prices, boosts demand for the fixed payments that bonds offer.

Shrinking Economy

Japan’s gross domestic product is expected to shrink at a 1.9 percent annual pace in the three months through December, according to a survey of 42 economists released Dec. 8 by the Economic Planning Association. The BOJ’s December Tankan report showed an index of sentiment among large manufacturers dropped for the first time since the end of the global financial crisis last year, sliding to 5 from 8 in September. The median estimate of economists surveyed by Bloomberg News was for a reading of 3.

The relative yield on New York-based JPMorgan Chase & Co.’s 1.8 percent Samurai notes due in May 2014 narrowed to 78 basis points as of Dec. 13 from 90 on Oct. 5. The spread on Tokyo-based Mizuho Corporate Bank Ltd.’s 1.235 percent notes due in June 2014 shrank to 19 from 22, according to data compiled by Bloomberg. Both banks are rated A+ by Standard & Poor’s.

Hana Bank, a unit of South Korea’s fourth-largest financial company, raised 30 billion yen from its first sale of Samurai bonds last month. Lloyds TSB Bank Plc, a London-based unit of the U.K.’s largest mortgage lender, sold 33.4 billion yen in its first Samurais, including five-year, 2.28 percent bonds.


“It’s inevitable that money is directed into Samurai bonds, which have high credit ratings and spreads,” said Toshiyasu Ohashi, head of credit research at Daiwa Securities Capital Markets Co. in Tokyo. “We need time until we see more new domestic borrowers or those with higher risk.”

Seven domestic borrowers sold bonds rated BBB by Japanese risk assessors in the seven weeks since the BOJ’s plan to purchase such debt was first reported, twice as many as in the same period last year, Bloomberg data show. Nippon Sheet Glass Co., which acquired Pilkington Group Ltd. in 2006, raised 24 billion yen on Dec. 3 from its first public sale of bonds since May 2008. The five-year, 1.55 percent bonds were priced to yield 90 basis points more than the yen swap rate.

Five-year credit-default swaps on 50 Japanese investment-grade borrowers bonds rose 0.6 basis point to 101.5 basis points yesterday, CMA prices in New York show. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to debt agreements.

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