BOJ Bid to Control Yields Seen Spurring Company Debt Demand

Why Aren't More Central Banks Controlling Yield Curves?
  • Long yields seen staying low, making company notes attractive
  • ‘Rush’ of super-long bond sales possible again, Daiwa says

The Bank of Japan’s decision to explicitly control sovereign bond yields will probably cap interest rates, bolstering demand for corporate debt offering extra premiums, according to analysts.

The BOJ added what it calls “yield curve control” to its stimulus mix on Wednesday and said it will seek to keep the yield on the 10-year government bond “around zero.” The average yield on Japanese corporate bonds ended that day at 0.24 percent, according to Nomura BPI indexes, compared with minus 0.035 percent for the nation’s 10-year debt.

“Investors are going to have to continue to invest in credit products such as corporate bonds to get spreads because looking over a long period we aren’t likely to see a big jump in interest rates,” said Hidetoshi Ohashi, the chief credit strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest lender. While the BOJ has tweaked its policies, inflation expectations aren’t likely to rise because of it, and market borrowing rates will probably stay low for a very long time, he said.

The BOJ vowed to continue stimulus measures “for as long as it is necessary” to achieve its 2 percent inflation target and refrained from giving a time frame. The central bank will probably try to keep longer-term interest rates from rising too much from current levels, which could help drive sales of longer corporate notes and demand from investors for even lower-rated issuers’ debt, according to Daiwa Securities Group Inc.

“If longer-term interest rates are kept stable, investors will be able to buy super-long-term bonds with more confidence because of less risk of price falls,” said Toshiyasu Ohashi, the chief credit analyst at Daiwa Securities in Tokyo. While the sale of notes maturing in 10 years or more had slowed with a steepening of yields in August, there could be a renewed “rush” in such offerings, he said.

Japanese corporate bond sales have risen 44 percent to 9.1 trillion yen ($90 billion) so far this year over the same period a year earlier. Issuance of company debt with maturities of 10-years or more has doubled to 5.9 trillion yen in the period, according to data compiled by Bloomberg.

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