Rout Sends Every Japanese Company Bond Sold in July Under Water

Are Government Bonds Worth the Risk?
  • Over 2 trillion yen of local bonds sold in July now below par
  • Price declines come as Japanese government debt sells off

Prices for every Japanese corporate bond sold in July dropped below face value as a selloff in domestic government debt rippled through global fixed-income markets.

All 63 bonds sold in yen by Japanese companies in July saw their prices fall below par as government notes on Tuesday tumbled by the most in more than three years, data compiled by Bloomberg show. Firms sold more than 2 trillion yen ($19.8 billion) of bonds in July, the most since June 2009, the data show.

The rout comes after the Bank of Japan last week opted not to increase its bond buying program or drive interest rates even further below zero, while spending measures announced by the government this week have proven underwhelming for investors. Some Japanese firms have been selling bonds with near-zero yields since the adoption of negative rates by the central bank in January, and investors are now having second thoughts about such debt as sovereign yields rise.

While the average yield premium that corporate notes offer over government bonds has shrunk to 39 basis points from 45 last Wednesday, the overall yield on company debentures has spiked to 0.25 percent from 0.10 percent as the collapse in underlying benchmark prices drags down overall prices of credit securities, Bank of America Merrill Lynch Index data show. Movements in government and corporate bond prices were almost perfectly correlated on Tuesday, the data showed.

The softness in Japanese debt markets was underscored by the fact that a 10-year government note auction on Tuesday drew the weakest demand in five months, while the yield on bonds at that tenor came within three basis points of turning positive, something that hasn’t happened since March.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE