Top Samurai Issuer Credits Draghi for Higher Japan Risk Appetite

  • Credit Agricole is biggest Samurai issuer since start of 2014
  • Foreign issuance of yen bonds rose 15 percent in that time

The top issuer of Samurai bonds says European Central Bank President Mario Draghi’s quantitative easing policies are encouraging Japanese investors to buy riskier bonds.

“With yields going down across the board after the European QE, the hunt for extra yield is becoming, of course, more complicated for Japanese investors,” said Philippe Rakotovao, global head of the corporate and investor client division at Credit Agricole SA’s corporate and investment-banking unit in London. “They invest more and more in credit.”

Credit Agricole is the single biggest issuer of yen-denominated securities in Japan since the start of 2014 and ranked 12th as an arranger in the period as Samurai offerings rose 15 percent. Nippon Life Insurance Co., Japan’s largest private life insurer, said last week it plans to boost holdings of overseas corporate notes as dwindling yields make domestic debt less attractive.

Japanese institutional investors are increasing holdings of investment-grade and speculative debt sold by overseas issuers to bolster returns at a time when the local benchmark 10-year bond pays a yield of 0.295 percent. Japan’s state-run $1.2 trillion Government Pension Investment Fund said this month it chose Nomura Asset Management Co. to oversee its allocations in U.S. high-yield bonds, and UBS Global Asset Management (Japan) Ltd. for its European speculative-grade debt.

A dearth of Japanese corporate note sales and their lower yields compared with overseas issuer debt are also stimulating demand for yen and foreign currency debentures from borrowers abroad, according to Kenji Sakaguchi, the chief investment officer in Tokyo at Prudential Investment Management Japan, which oversaw the equivalent of $139 billion at the end of March. Japanese company note issuance has fallen 32 percent to 3.92 trillion yen ($33 billion) since April from a year earlier, while Samurai offerings are little changed at 1.46 trillion yen.

“Just as local investors are reluctant to put money into Japanese government bonds, in the same way, it is difficult for them to put that money into domestic corporate notes,” Sakaguchi said. “That is why we are continuing to see money going into foreign bonds.”

Japanese fund managers are adding to foreign-denominated corporate debt holdings that offer additional credit spreads, according to Sakaguchi. That helps make up for the cost of hedging currency risk at a time when yields of non-yen government notes are dropping, he said.

Sovereigns Sold

Investors in Japan have sold a net 2.63 trillion yen of a basket of European sovereign bonds comprising debt of France, Germany, Italy and the Netherlands so far this year, the most in four years and an increase from 2 trillion yen for all of 2014, according to Japan’s Ministry of Finance data.

In addition to its own Samurai sales, Credit Agricole has managed bond deals targeting Japanese investors by the Asian Development Bank, International Bank for Reconstruction and Development and European Bank for Reconstruction and Development this year. Credit Agricole CIB, the corporate and investment-banking unit, set up a dedicated debt capital markets operation in Tokyo last year to help local issuers raise funds for expansion overseas, according to Rakotovao.

Credit Agricole co-managed SoftBank Group Corp.’s five-part bond sale in July that included $2 billion of dollar-denominated debt and 2.25 billion euros ($2.5 billion) in notes.

“There is a new trend developing, which is Japanese corporations going abroad more and more and requiring financial solutions to finance their expansion abroad,” said Rakotovao. “Japanese investors are mainly in yen, but they are looking for assets everywhere in the world.”

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