How Global Investors Turn Negative Japan Yields Into Big Returns
- Discount for yen borrowers swells to record 102.5 basis points
- `Widening in basis swaps' to be focus in 2016, Barclays says
What Can Japan Do to Help the Economy Blossom?
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Record-low negative yields are no deterrent to overseas demand for Japanese government bonds. In fact, they’re an incentive.
The discount offered to dollar holders to borrow yen for five years in the swap market reached a record 102.5 basis points this week, as the Bank of Japan’s Jan. 29 decision to switch to interest rates below zero widened a divergence from U.S. monetary policy. Calculations on returns for investors using such funding show the fixed coupon equivalent for owning five-year JGBs was 2.3 percent on Thursday, despite a yield of minus 0.16 percent on the debt.