15 de julio de 2014 / 9:13 / hace 3 años

Japan yield hunt ushers in longest Samurai

HONG KONG, July 15 (IFR) - Growing demand for higher-yielding assets has allowed Mexico to sell its longest yen bond, offering a sign that Japan's reforms are adding to risk appetite in the country's capital markets.

The Government of the United Mexican States priced a three-part ¥60bn (US$592m) Samurai bond on Tuesday that included an unprecedented 20-year tranche. Samurai bonds refer to yen securities sold by foreign governments or companies in Japan's domestic market.

Only the World Bank and European Investment Bank, both rated Triple A, have sold Samurai bonds at maturities beyond 15 years since the 2008 financial crisis.

With a rating six notches lower, Mexico shows that Japanese investors are turning to riskier credits and longer maturities to boost returns.

"Japanese investors are tired of tightening spreads and low yields," said a Tokyo-based banker. "They've been suffering."

LATE ADDITION

Mexico raised ¥12.3bn at a 2.57% coupon from the 20-year tranche, after adding the long-dated piece to meet demand from investors, including pension funds.

Judging by the smallest size among the three tranches, bankers away from the deal speculated that the 20-year was bought only by a handful of investors. Still, Mexico's late addition underlines a growing demand for longer maturities as rising inflation forces Japanese investors to search for higher returns.

"Investors that were shut out from the five-year and 10-year tranche settled in the 20-year," according to a banker on the deal.

"They were attracted to pricing levels, which offer much more than what we've seen so far this year."

Japanese bond yields have fallen since the Bank of Japan unveiled its massive monetary stimulus last April.

The central bank's purchases of Japanese government bonds (JGBs) have pushed yields down to just 0.55% at 10 years and 1.414% at 20 years, in turn squeezing credit spreads on yen bonds.

The tightening environment has been a boon for issuers, helping drive Samurai bond sales to ¥1.53trn in the first six months of 2014, the highest first-half total since 2008.

Hongkong and Shanghai Banking Corp sold a five-year fixed-rate Samurai bond at the tightest spread since 2000, while other Double-A rated Samurais have also managed to price deals at single-digit spreads in the past few months.

Samurai bonds offer higher yields than domestic Japanese bonds, but typically come with high ratings and short maturities to appeal to the country's conservative investor base.

Recent new issues, however, show that investors are embracing additional risk as they look to boost returns on their credit portfolios.

DOWN THE CREDIT CURVE

Mexico's 10-year tranche is the longest Samurai without a guarantee since 1996. It sold 10-year yen-denominated debt in 2009 and 2010, both times with guarantees from Japan Bank for International Cooperation.

Despite rivalling Mexico's lowest coupon rates, returns on the new Samurai bonds are lucrative compared to domestic debt. The ¥33.8bn five-year fixed-rate tranche priced at a 0.8% coupon, returning about 65bp more than five-year Japanese government bonds. The coupon on the ¥13.9bn 10-year is 1.44%, or around 90bp over JGBs.

Some bankers expect investors to continue their foray into longer-dated and lower-rated bonds as Japanese inflation creeps closer to the 2% target set by Shinzo Abe's reformist government.

Core consumer inflation hit 1.4% in the year to May, excluding the effect of the sales tax hike.

Foreign issuers, however, have plenty of other options, with the US dollar and euro markets offering extremely competitive funding.

"I have received more inquiries about lower-rated names given what Abenomics is doing to the markets," according to a banker away from the deal. "It's happening, but the pace is still really slow." (Reporting by Frances Yoon. Editing by Steve Garton)

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