Japanese Companies Are Rushing to Sell Longer Dated Bonds

Updated on
  • Debt sellers include Mitsubishi Chemical and Sumitomo Forestry
  • Rising rates abroad may have stimulated such issuance: Mizuho
Haruhiko Kuroda, governor of the Bank of Japan (BOJ), arrives for a news conference in Tokyo, Japan, on Tuesday, Oct. 31, 2017. The BOJ left its massive monetary stimulus program unchanged even as it trimmed its inflation forecasts, signaling further divergence ahead from its global peers. Photographer: Kiyoshi Ota/Bloomberg

Japanese companies are selling super-long bonds amid expectations that Haruhiko Kuroda’s reappointment as central bank governor will prolong easy monetary policy, even as increases in overseas yields put pressure on Japanese market rates to rise.

Less than a week after Prime Minister Shinzo Abe nominated Kuroda for another term, Mitsubishi Chemical Holdings Corp. sold what was its first 20-year debt in about a year and a half on Wednesday. Next week, trading firm Toyota Tsusho Corp. plans to price 20-year notes, and Sumitomo Forestry Co. will sell its first 15-year securities ever, according to people familiar with the matter.

Kuroda’s launch of the negative-interest-rate policy two years ago at the Bank of Japan sparked a rush by companies to sell longer bonds as borrowing costs tumbled and investors sought higher-yielding assets. Companies issued 1.68 trillion yen ($15.7 billion) of bonds maturing in 15 years or more in 2017, the second-highest total after record sales a year earlier, according to Bloomberg-compiled data. Concern that Japanese debt’s yields may be dragged higher in line with its U.S. and European counterparts’ is also prompting issuers to sell longer bonds while rates are still low, according to Mizuho Securities Co.

“Even if the BOJ is expected to make no change in its policy, financing managers may feel they should lock in funds for the long-term,’’ said Hidetoshi Ohashi, chief credit strategist at Mizuho Securities in Tokyo.

Japanese companies have sold 131 billion yen in bonds maturing in 15 years or more since the start of the year, according to Bloomberg-compiled data. Another 50 billion yen of debt is in the pipeline, including planned offerings by Tokyu Fudosan Holdings Corp. and Kyushu Electric Power Co., according to people familiar with the matter.

The BOJ mainly targets the overnight interest rate and the 10-year Japanese government bond yield, leaving longer-term rates more to market forces. The 30-year U.S. Treasury yield has jumped 47 basis points to 3.2 percent since the start of the year. The equivalent Japanese government bond rate was little changed during the period, at 0.78 percent.

Sotetsu Holdings Inc. has decided to issue super-long debt on a view that rates beyond 10 years could rise, according to Masayuki Okawa, manager at its corporate strategy division. The transport operator is planning a 15-year issue, people familiar with the matter said.

See also: BOJ started buying corporate bonds at negative yields again

Still, analysts widely expect Kuroda to keep BOJ policy on hold for now, limiting any increases in debt yields, as inflation remains below his 2 percent goal. Only three economists out of 26 expect the appointment of him and his two deputies to change the course of policy, according to a Bloomberg poll. The yen’s gains versus the dollar since late last year adds to the perception that the BOJ will stay its course, many analysts said in the survey. The U.S. currency has fallen more than 6 percent since the start of November, to 107.06 yen.

“For investors who need to secure a certain level of yield, super-long bonds can be a good choice,” said Katsuyuki Tokushima, chief investment analyst at NLI Research Institute.

(Adds Japan’s inflation rate in second-to-last paragraph.)
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