Natixis Hiring Shows Gain From Moribund JGB Market: Japan Credit

France’s Natixis SA is hiring as the waning appeal of Japan’s government bond market provides opportunities for banks that can offer higher-returning trades.

The investment bank is seeking to arrange repurchase agreements for Japanese regional lenders and insurance companies that will earn them bigger gains on their sovereign holdings, according to Laurent Girault, president of Natixis Japan Securities Co. Japan’s 10-year benchmark yield has plunged 19 basis points this year to 0.545 percent, and the debt failed to trade in the morning session for a second day yesterday. U.S. Treasuries due in a decade pay 2.54 percent.

The Bank of Japan yesterday said it will press on with about 7 trillion yen ($69 billion) in monthly bond purchases until inflation reaches 2 percent, a policy that has dragged price swings and trading volumes to near record lows. All 33 analysts in a Bloomberg News survey expect no stimulus tapering before 2016. Natixis is increasing employees at its Japanese unit by 50 percent this year and is selling its first bonds to individuals to tap demand for higher-yielding securities.

“Japanese investors are full of JGBs which are not giving high returns, so the idea is to work on that and help them to diversify and recycle part of their JGB portfolios,” Girault said by telephone. “It is really a way to make Natixis Japan a domestic player in the fixed income area.”

Natixis Japan plans to increase its sales force to 15 by the end of the year from about nine, with two people dedicated to JGB transactions, Girault said. The company will raise the overall headcount in the country by about 20 people to 60, Chief Executive Officer Laurent Mignon said in March.

New Offerings

The Paris-based company is expanding offerings at its Japanese unit to include bond repurchasing and interest-rate swaps, Girault said. It’s also targeting lenders and insurance companies with structured fixed income products backed by debt from borrowers from Latin America to the Middle East.

Japanese investors are increasingly interested in repackaged overseas credit products, as attractive investments at home dwindle, said Hisayoshi Nogawa, a structured credit strategist at BNP Paribas SA in Tokyo. “Especially this year, you are seeing a broad movement by investors to expand what they can buy.”

Vanishing Yield

The unprecedented push to overcome deflation cut the average yield on Japanese corporate bonds to 0.37 percent, the lowest since 2003, according to Bank of America Merrill Lynch index data. That compares with 0.51 percent for Samurais, yen-denominated notes sold by overseas borrowers in Japan, the indexes show.

The yen strengthened 3.5 percent against the dollar this year and traded at 101.74 as of 12:06 p.m. in Tokyo. The Japanese currency plunged about 18 percent in 2013.

Samurai sales more than doubled this year to 1.66 trillion yen, while Japanese domestic corporate offerings shrank 16 percent to 4.7 trillion yen, Bloomberg-compiled data show. Natixis’s parent Groupe BPCE was the second-biggest Samurai issuer in 2013 with 131.6 billion yen.

BPCE, France’s second-largest lender by branches, sold 70 billion yen in Samurais this month. The offering included five-year notes offering 23 basis points over the yen swap rate, 15 basis points less than the yield premium sought by investors for its similar-length maturity debt in December. A basis point is 0.01 percentage point.

Mexico Samurai

Mexico sold 60 billion yen of the bonds yesterday, including 20-year notes that offered a coupon of 2.57 percent.

“You are seeing a move by investors to capture higher returns on longer-term debt sold by overseas names,” said Yutaka Ban, the chief credit analyst in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s second-largest bank. “You don’t see many bonds with a coupon of 2.57 percent.”

In addition to Samurai bonds, BPCE is also targeting individual investors, selling the equivalent of about $80 million of Turkish lira-denominated notes this month. Offerings of the so-called Uridashi debt last year were more than six times the amount of Samurai notes, Girault said.

“The idea is to open new accounts with new investors,” he said. “Doing a yen business we will open the doors to do European business as well.”

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