Photographer: Kiyoshi Ota/Bloomberg

Brexit Means Even Mickey Mouse’s Yen Bonds Have Negative Yields

Updated on
  • Number of yen company yields below 0% up 10-fold after Brexit
  • Buying on speculation ‘the BOJ will boost easing:’ SMBC Nikko

Japanese investors fleeing markets rocked by Brexit have fueled a 10-fold jump in the number of negative-yielding yen corporate bonds.

Bonds of Oriental Land Co., the operator of the Tokyo Disney Resort, and Coca-Cola East Japan Co. are among more than 800 issues with yields below zero, up from 70 before Britain’s vote to leave the European Union was announced on June 24, data compiled by Bloomberg show. Pressure is building on the Bank of Japan to boost debt-buying stimulus this month as a surge in the yen threatens to undo more than three years of monetary easing.

“Those buying at negative rates need to park cash somewhere,” said Muneharu Hashimoto, a credit analyst in Tokyo at SMBC Nikko Securities Inc. “We’ve had Brexit and increased speculation that the BOJ will boost easing.”

QuickTake Negative Interest Rates

With almost 90 percent of Japan sovereign notes trading at negative yields and corporate issuance just recovering from a six-year slide, fund managers often have little choice but to buy debt that if held to maturity will result in losses. A Bank of America Merrill Lynch index showed yen company debt returned 1.47 percent this year and investors may be able to profit if interest rates fall further or the central bank buys their notes.

Bonds of Mitsubishi Estate Co., Japan’s biggest property developer, wireless carrier NTT Docomo Inc., and the nation’s largest lenders have all traded at negative yields since Brexit, according to data from the Japan Securities Dealers Association. The BOJ is already buying corporate notes in monthly market auctions, and purchased debt of companies at an average rate of minus 0.217 percent on June 20.

The yield on Oriental Land’s 2018 bonds has dropped to minus 0.022 percent from 0.039 percent on June 23, the day of the Brexit vote, according to Bloomberg-compiled data. Coca-Cola East’s 2017 note yield fell to minus 0.028 percent from 0.042 percent during the same period.

“Dealers will go as far as buyers are willing to pay when it comes to pricing bonds,” said Hashimoto at SMBC Nikko. “It wouldn’t be surprising if corporate bond yields fall even further,” considering how low yields are on company debt the BOJ buys, he said.

While units of Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. have sold debt at 0.001 percent since June, company notes haven’t been issued at minus rates in Japan, with the exception of shorter-term commercial paper. Japanese corporate bond sales have risen 16 percent this fiscal year to 2.18 trillion yen ($22 billion), after falling to the lowest in nine years in the 12-month period to March 31.

For analysis on how the Brexit vote will affect Japanese companies, click here.

The yen traded around the 100-level against the greenback for a third straight day Friday, near the highest since November 2013 reached on June 24. While the stronger yen makes it cheaper for the nation to import goods from overseas, generating deflationary pressure, it’s also prompting analysts to downgrade earnings forecasts for some of the country’s biggest companies and employers including Toyota.

“The chances of more from the BOJ must have increased after this Brexit vote,” said Richard Jerram, the chief economist at Bank of Singapore Ltd. “They need to find some way to offset the yen strength.”