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Japan’s SMBC Offers Dollar Debt Following Mitsubishi Issuance

July 11 (Bloomberg) -- Sumitomo Mitsui Banking Corp. plans to offer U.S. dollar-denominated bonds after sales by Mitsubishi Corp. and the Indonesian sovereign. Asia-Pacific bond risk fell.

SMBC, the banking unit of Sumitomo Mitsui Financial Group Inc., Japan’s second-largest financial company by market value, is marketing a sale of three-year, five-year and 10-year bonds, according to a person familiar with the matter, who asked not to be identified because the terms aren’t set. Mitsubishi Corp., a trading company with units from Thailand to Italy, sold $500 million of bonds yesterday, while Indonesia raised $1 billion in the largest sale by an Asian issuer outside Japan since May, data compiled by Bloomberg show.

Perceptions of bond risk in the Asia-Pacific region fell today, with an index of Japanese corporate credit-default swaps poised for its lowest close in almost a month, according to traders. The Bank of Japan said today it was sticking with an April pledge to expand the monetary base by 60 to 70 trillion yen ($709 billion) per year.

“Borrowers such as Mitsubishi Corp. and SMBC have invisible sovereign support,” said Manabu Tamaru, a Tokyo-based fund manager who helps oversee $506 million of fixed-income investment at Baring Asset Management Japan Ltd. “Japan as a sovereign is the world’s largest net creditor nation, which makes investors feel comfortable,” he said in a telephone interview today.

The Markit iTraxx Japan index dropped 1.5 basis points to 100.5 as of 9:20 a.m. in Tokyo, according to Citigroup Inc. prices. The gauge is poised for its lowest level since June 12, CMA data show.

SMBC Markets

SMBC is considering pricing three-year bonds, which will be split between fixed- and floating-rate notes, at 100 basis points more than similar-maturity Treasuries, the person familiar with the matter said. The lender is also offering five-year securities at 135 basis points more than U.S. debt and 10-year bonds at a 155 basis-point spread, the person said.

Mitsubishi priced its five-year bonds at 150 basis points more than the benchmark, data compiled by Bloomberg show. That spread tightened to 137 basis points as of 12:13 p.m., BNP Paribas SA prices show.

Indonesia sold 10.25-year notes to yield 5.45 percent, according to data compiled by Bloomberg. The bonds paid 5.29 percent as of 10:21 a.m. in Hong Kong, Bloomberg prices show. The offering received almost two-times more orders than the number of notes available, a person with knowledge of the matter said today. Mitsubishi was about six-times oversubscribed, a separate person said.

Risk Falls

Issuers from Asia outside Japan sold $500 million of bonds in June, the least since December 2008, according to data compiled by Bloomberg.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan declined 4 basis points to 156.5 basis points as of 8:25 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. The measure, which closed at 152.4 last quarter, is down from a one-year high of 177.8 on June 24, according to data provider CMA.

The Markit iTraxx Australia index fell 2 basis points to 131 as of 10:26 a.m. in Sydney, Westpac Banking Corp. prices show. The benchmark is set for its lowest close since June 19, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

To contact the reporter on this story: Rachel Evans in Hong Kong at revans43@bloomberg.net

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net

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