Even Yield-Hungry Japan Housewives Get Nervous Amid Uridashi Ebb

  • September uridashi note offerings fall to least since 2008
  • Fewer notes tied to equities as Nikkei 225 benchmark tumbles

Even Mrs. Watanabe’s getting nervous.

Spooked by a plunge in commodity prices and global growth that looks anything but rosy, Japanese individual investors drove offerings of so-called uridashi bonds down 24 percent last month to the least since December 2008.

Sales in September totaled $1.17 billion, according to data compiled by Bloomberg, as appetite for higher yielding debt waned and the structure of some notes prevented people from reinvesting their money.

“The equity market has dropped sharply and is very volatile due to uncertainty of the Chinese economy, falling oil prices and an expected U.S. rate hike,” said Yasuhiro Ishibashi, Barclays Plc’s co-head of equities and funds structured markets for Asia Pacific. “High-yield currencies like the Brazilian real and Turkish lira were sold off, and investors’ risk appetite has decreased.”

A relatively strong yen didn’t help because investors lost out on any depreciation bets they had. Japan’s currency strengthened 2.19 percent against the dollar last quarter, making it Asia’s best performing. The Nikkei 225 Stock Average, which underpins almost half of single stock-tied uridashi notes, has tumbled 13 percent from its peak this year in June. Sales of equity- or foreign exchange-tied uridashis are also dependent on new money inflows and reinvestments from existing structured products that are redeemed early.

“Generally speaking, the levels that will allow equity-tied notes to be redeemed early will be set at between 100 to 110 percent from initial levels, and reviewed once a month or every quarter,” said Tomoyuki Sasai, the Tokyo-based head of equity derivatives for Japan at Credit Suisse Group AG. “If the Nikkei continues to stay at around 18,000 to 19,000, demand will remain sluggish.”

Simpler Products

The benchmark closed at 18,141.17 Thursday. Uridashi note distributors are increasingly looking toward institutional investors to fill the void, Sasai said.

Within total uridashi sales, equity-linked notes fell 39 percent in September to $450 million, a more than three year low. Offerings of foreign exchange-tied securities decreased 52 percent to $128 million, the least since June 2013, according to Bloomberg-compiled data.

“We’re seeing more bullet, fixed-coupon bonds denominated in foreign currencies, so investors may be looking at simpler products that don’t necessarily have a bullish market outlook,” said Misaki Jinnai, the head of global markets structuring at Deutsche Bank in Japan. Plain vanilla bonds comprised about 50 percent of uridashi sales last month and increased 14 percent from August.

Although volatile markets have curbed issuance, uridashi notes will remain a key investment for individuals in Japan, especially considering the near-zero returns people earn on bank deposits, said Barclays’ Ishibashi.

“Emerging-market currencies are now very cheap and it’s a good time to invest for long-term purposes,” he said.

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