Photographer: Taylor Weidman/Bloomberg

Samurai Buyers More Open to Risk as Philippines Mulls Return

Updated on
  • Indonesia tapped Samurai bond market for a third straight year
  • Lack of higher-rated European issuer supply sees demand unmet

The Samurai bond market may be getting a little ninja-like appetite for risk.

After a dearth of higher-grade yen-denominated securities earlier this year, investors snapped up lower-rated bonds sold by Credit Agricole SA and Indonesia in recent weeks. The Philippines is also considering a return to the market for the first time since 2010.

A lot’s changed since the Philippines last came to this market. For one thing, it’s now on the investment-grade ladder, two steps above junk -- back in 2010, it sold its Samurais with a state-owned Japanese bank guarantee. And with rock-bottom yields from domestic issuers, Japanese investors are hungrier for marginal returns.

Another benefit for the Southeast Asian nation: interest rates for the strongest European banks are so low at home that selling in Samurais doesn’t make much sense -- something that’s left a supply gap for buyers.

“Japanese investors used to be very conservative in terms of the credit ratings they buy,” said Akihiro Igarashi, an executive director at Nomura Securities Co.’s syndication department in Tokyo. “In this negative yield environment, they have to change their investment style, by for example widening their credit horizon.”

Indonesia sold 100 billion yen ($908 million) of Samurai bonds May 31 after S&P Global Ratings upgraded the nation to investment grade from junk. The Philippines is examining a return to the Samurai market among “cost-efficient financing options” to diversify its investor base and meet funding needs, Treasurer Rosalia de Leon said last week.

While Indonesia paid premium over its U.S. dollar curve, it was the price that the sovereign was willing to pay in return for diversification, the Ministry of Finance said in an emailed response. “We like to diversify our funding sources to serve our natural hedging strategy for our yen exposure. Given the low yield environment, we understand that premium is needed to satisfy these investors and we were happy with the pricing we have achieved this time,” the email said.

Traditional Samurai bond issuers in the month of May were absent this year, including double A-rated European banks such as Rabobank NA. Single-A rated Credit Agricole SA executed a 203.9 billion-yen deal this month, which was the market’s biggest in a decade. More than half of those bonds were graded less than the issuer’s rating because they could be written off in the event of any liquidation.

Samurai bond sales in the fiscal year that began on April 1 total 383.9 billion yen, down 14 percent from the same period a year earlier, according to data compiled by Bloomberg. Issuance in the 12 months to March 31 was 1.8 trillion yen, the lowest in four years.

“Japanese investors have a strong appetite for Samurai bonds due to the yield pickup compared to domestic ones, whose spreads are very tight,” said Tadashi Matsukawa, the Tokyo-based head of Japanese fixed-income investment at PineBridge Investments Japan. “There’s not enough supply -- which means issuers can get away with tight spreads as seen in the case of Indonesia’s recent issue.”

Going forward, Indonesia is looking to woo more Samurai bond buyers.

“We want to come to the Samurai bond market regularly as Japan is an important market for our diversification of funding sources,” the finance ministry said.

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