BOJ Spurs Yen Investors Into Foreign Debt as Mexico Sells

  • Mexico issues its lowest-priced Samurai bonds on record
  • Most yen note sales by foreigners since minus rates launched

Mexico sold its lowest-priced Samurai debt Thursday in a deal that brings yen-denominated issuance by foreign borrowers in the last month to more than 500 billion yen ($4.7 billion), the most in a four-week period since the Bank of Japan adopted its negative-rate policy this year.

Mexico offered 45.9 billion yen of three-year notes at a yield of 0.4 percent, an inconceivable level only several years ago when the nation was still selling yen debt with a Japanese government guarantee. Today’s sale, which has no such guarantee, follows a yen bond issuance last week by Panama-based Banco Latinoamericano de Comercio Exterior SA.

Mexico sold a total of 135 billion yen of debt in a deal that also included five-year, 10-year and 20-year Samurai bonds. The 10-year notes pay a coupon of 1.09 percent, compared with a minus 0.12 percent yield on Japanese sovereign debt of the same maturity. Mexico sold 10-year U.S. dollar bonds with a 4.125 percent coupon in January, according to data compiled by Bloomberg.

“There is demand in Japan for bonds with higher yields,” said Hidetoshi Ohashi, the chief credit strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest lender. “Bonds from emerging market sovereigns are being favored.”

Indonesian Samurai

Indonesia is marketing three-year and five-year Samurai notes scheduled to sell next week, while French lender BPCE SA is set to price a yen deal on Friday including five-year notes paying a coupon of 0.15 percent. Mexico joins Credit Agricole SA, and Societe Generale SA in pricing Samurai deals in excess of $1 billion in the last month, while Bank of America Corp. sold 110 billion yen of yen notes on May 12.

The average yield premium on foreign yen-denominated debt was 59 basis points Wednesday, compared with 37 for domestic sales, Nomura Holdings Inc.-compiled data show. European banks are also selling riskier subordinated yen bonds that offer coupons in excess of 1.7 percent that help the lenders boost capital.

Societe Generale’s sale was the first benchmark-sized Samurai since the Bank of Japan adopted its negative-rate policy in January. An increase in the cost to swap yen funds into dollars since the BOJ’s announcement and declining costs in other markets has weighed on the market this year, Bank of America Corp. said in a report this week.

“Continued expansion of basis spreads, the global decline of interest rates, as well as regulatory reasons, have led to reduced issuance of samurai bonds,” Bank of America Merrill Lynch strategists Kana Ichiki and Shuichi Ohsaki wrote. “Our view is that the issuance will stay low” this year, they said.

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