The Bank of Japan's decision to explicitly control sovereign bond yields will probably cap interest rates, bolstering demand for corporate debt offering extra premiums, according to analysts.
The BOJ added what it calls “ yield curve control” to its stimulus mix on Wednesday and said it will seek to keep the yield on the 10-year government bond “around zero.” The average yield on Japanese corporate bonds ended that day at 0.24%, according to Nomura BPI indexes, compared with minus 0.035% for the nation's 10-year debt.
“Investors are going to have to continue to invest in credit products such as corporate bonds to get spreads because looking over a long period we aren't likely to see a big jump in interest rates,” said Hidetoshi Ohashi, the chief credit strategist in Tokyo at Mizuho Securities Co., a unit of Japan's third-largest lender. While the BOJ has tweaked its policies, inflation expectations aren't likely to rise because of it, and market borrowing rates will probably stay low for a very long time, he said.
The BOJ vowed to continue stimulus measures “for as long as it is necessary” to achieve its 2% inflation target and refrained from giving a time frame. The central bank will probably try to keep longer-term interest rates from rising too much from current levels, which could help drive sales of longer corporate notes and demand from investors for even lower-rated issuers' debt, according to Daiwa Securities Group Inc.
“If longer-term interest rates are kept stable, investors will be able to buy super-long-term bonds with more confidence because of less risk of price falls,” said Toshiyasu Ohashi, the chief credit analyst at Daiwa Securities in Tokyo. While the sale of notes maturing in 10 years or more had slowed with a steepening of yields in August, there could be a renewed “rush” in such offerings, he said.
Japanese corporate bond sales have risen 44% to 9.1 trillion yen ($90 billion) so far this year over the same period a year earlier. Issuance of company debt with maturities of 10-years or more has doubled to 5.9 trillion yen in the period, according to data compiled by Bloomberg.
Bloomberg News
Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.
Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Thought leadership on regulatory changes, economic trends, corporate success stories, and tactical solutions for treasurers, CFOs, risk managers, controllers, and other finance professionals
- Informative weekly newsletter featuring news, analysis, real-world case studies, and other critical content
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the employee benefits and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
