TOKYO: Sales of corporate bonds to Japan’s mom-and-pop investors are booming, on track to surpass last year’s record as bigger returns draw buyers looking to protect their savings from inflation.
Well-known names such as railway operator Keio Corp and supermarket giant Aeon Co
are among those tapping the retail bond market, with the latter selling its debut retail bond last Friday.
The offerings are tempting non-professional investors with rates as high as 3.34% on five-year notes from SoftBank Group Corp, a prominent technology and telecoms holding company.
That’s almost triple the yield on government bonds of the same maturity.
Sales have reached about 1.5 trillion yen or about US$10.2bil in the first five months of the fiscal year that started April 1, according to data compiled by Bloomberg.
That’s after companies in Japan sold a record about 2.4 trillion yen of bonds to individuals last fiscal year, the data show.
Expectations that the Bank of Japan may raise interest rates again this year as inflation takes hold – a marked shift from years of sub-zero policy – has increased the focus on higher returns.
While the country’s major stock indexes are trading around record highs, offering enticing returns, the volatility in equities this year has highlighted the attractiveness of regular income payments on bonds.
“Bonds offer interest income and return the principal as long as there’s no default, so they’re more attractive than just leaving money in the bank,” said Koji Ota, a 37-year-old worker in the transportation industry in Osaka, who’s been investing in corporate debt for the past three years.
A person who bought one million yen of the two-year retail notes sold by eCommerce giant Rakuten Group Inc in February 2023 with a coupon of 3.3% would have received about 1.07 million yen in total, including both regular interest payments and the principal at maturity.
In contrast, two-year time deposits at Mizuho Bank Ltd offer an interest rate of 0.325%, and comparable government notes yield about 0.87%.
While the Topix index of stocks has rallied about 30% since the start of last year, the gains were punctuated by sharp selloffs of around 20% in August last year and this April.
“Jumping into stocks felt too risky,” said Kyoko Takahata, a 37-year-old housewife in Okayama in western Japan, who last year moved a fifth of her savings into bonds sold by three Japanese firms as rising interest rates led her to reassess finances.
She chose corporate bonds because they offer higher yields than government debt and provide predictable income.
Some of the issuers looking to get a bigger slice of Japan’s 2,200 trillion yen of household assets offered themed bonds, or non-monetary incentives, to leverage their name recognition.
The “Rakuten Cardman Bond” featured a superhero-like character, and a deal from Fukui Prefecture – where prehistoric sauropod and theropod skeletons have been found – offered a lottery for dinosaur-themed goods.
With its first retail bond in 31 years, rail and leisure group Keio ran a lottery for prizes including a stay at the luxury Keio Plaza Hotel in Tokyo, dinner at high-end teppanyaki restaurant Ukai-tei and FC Tokyo football gear.
“We see this as a way to build stronger ties with retail investors,” said Yuki Iimuro, who handles fundraising at Keio’s treasury department.
Yet the freebies linked to many deals may detract buyers from seeking an understanding of the risks involved in the investments.
The broader corporate bond market in Japan for retail and institutional investors alike isn’t without its flaws.
The Japan Securities Dealers Association sent questionnaires to nine major local and foreign brokerages asking about bond selling irregularities, such as overstating to issuers how much demand there is for their debt. — Bloomberg