JAPAN’S top debt underwriters are predicting another strong performance for corporate and Samurai bond sales in the fiscal year starting April, regardless of what the central bank does on policy.
Borrowers have issued a record 16.6 trillion yen ($149.6 billion) from yen-denominated bonds in the year ending Mar 31, Bloomberg-compiled data show. Next fiscal year the total is seen staying high around 15.5 trillion to 17.6 trillion yen, according to a Bloomberg survey of Japan’s top five brokerages in terms of arranging debt deals.
Market rates indicate that demand for yen bonds remains robust even as the Bank of Japan (BOJ) is widely expected to raise interest rates for the first time since 2007 this month or in April. As the Japanese government bond market keeps relatively calm, yield premiums on corporate notes have tightened to 52 basis points, the lowest since September 2022, a Bloomberg index shows.
Still-cheap borrowing costs, refinancing needs for utilities, and funding for big mergers and acquisitions will likely drive new bond deals, the survey showed.
“The lifting of negative interest rates has been factored into the market to some extent, and that alone probably will not have a significant impact on the credit market,” said Hisashi Kawada, executive director of debt capital markets at Nomura Securities.
With Japanese companies’ debt sales expected to rise in the April to June period, the recent tightening in spreads may pause temporarily due to increased bond supply, he said.
“Our main scenario is that the BOJ will find it difficult to raise interest rates continuously, so long-term interest rates are likely to remain stable, which could lead to tighter spreads,” said Masahiro Koide, joint head of the products business division at Mizuho Securities. Strong corporate earnings also support the market, he said.
Although bankers do not see it as a major risk, there’s still caution about the possibility of faster-than-expected BOJ rate hikes. That may prompt firms to pause or cancel deals. Market players are also monitoring whether issuers will increase the use of covenants to protect bondholders, paving the way for more sales of high-yield notes.
“We are keeping a close eye on the issuance trends of bonds offering covenants in Japan, as the market for low-rated corporate bonds is still small,” said Jumpei Nagura, a credit strategist at Mitsubishi UFJ Morgan Stanley Securities. BLOOMBERG
