Negative Rates Seen Pushing Japanese Farmers Into U.K. Mortgages

  • Norinchukin Bank bought more than $2.9 billion of bonds
  • U.K. mortgage-backed securities sold by Cerberus Capital

In the latest sign negative interest rates are pushing investors into riskier assets, a bank for Japanese farmers and fishermen has bought more than 2 billion pounds ($2.9 billion) of U.K. mortgage-backed bonds, according to people familiar with the matter.

Cooperative lender Norinchukin Bank acquired senior-ranking notes in a 6.1 billion-pound deal that priced earlier this month, said the people, who asked not to be identified because they’re not authorized to talk about it. Cerberus Capital Management sold the bonds secured by mortgages from failed U.K. lender Northern Rock Plc, which it acquired last year.

Japanese investors are moving into higher risk assets abroad as negative yields erode the appeal of domestic government bonds. Eight of 11 Japanese regional banks surveyed by Bloomberg last month said they’ve begun or are considering asset reallocation, with foreign bonds and real estate investments among the most popular products.

“Bond yields are negative but funding costs are not, so Japanese institutions have to buy risk assets,” said Hideaki Kuriki, a Tokyo-based debt investor at Sumitomo Mitsui Trust Asset Management. “They will acquire more foreign assets, but this will occur gradually as Japanese investors are very conservative.”

Masahiro Mikami, a Tokyo-based spokesman for Norinchukin Bank, declined to comment on whether the bank had bought the bonds. Officials for Cerberus and Morgan Stanley, which arranged the transaction known as Towd Point Mortgage Funding 2016-GR1, also declined to comment on the allocation of the deal.

The transaction was the largest sale of asset-backed debt in Europe in more than nine years, people familiar with the matter said on April 5.

Monetary policy has been turned on its head since the financial crisis. Almost 500 million people live in countries where interest rates are less than zero, meaning borrowers get paid and savers penalized.

The European Central Bank and the Bank of Japan are diving deeper into the sub-zero world as they seek more ways to spark inflation. ECB President Mario Draghi lowered the rate it charges on cash parked overnight by lenders to minus 0.4 percent in March, while BOJ Governor Haruhiko Kuroda introduced a rate of minus 0.1 percent on certain excess holdings of cash in January.

Yields on Japanese government bonds with maturities as long as 10 years turned negative this year after the BOJ’s announcement in January.

The central bank board is scheduled to meet April 27-28 to consider any changes to Japanese monetary policy. Economists are split on whether it made the right decision in adopting the negative rate, with just over half of those surveyed by Bloomberg saying it was a mistake.

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