(Bloomberg) — Stimulus steps by the Bank of Japan this year are prompting issuance of longer debt to fall, to the detriment of fund managers chasing the extra yield on such securities.
Sales of company notes due in more than five years have dropped 38% in the fiscal year started April 1. Offerings maturing in shorter periods have jumped 35% to a record, according to Bloomberg-compiled data going back to 2009. The shift comes after the BOJ decided to lengthen the maturity of corporate bonds it purchases to five years from three years.
The central bank’s corporate debt buying, which it began in 2009 and expanded this year, has helped firms rushing to secure cash to ride out Covid-19. Company notes tend to be riskier than government bonds, so the BOJ’s focus on shorter maturities for the corporate securities helps it avoid locking into those for too long. But the shift in issuance it’s sparked is a headache for active fund managers who would prefer to have a fuller menu of longer notes with juicer yields.
“The BOJ’s corporate bond buying operation has helped issuers and the Japanese economy, but it’s challenging active managers’ abilities to continue with their strategies,” said Yusuke Ueda, chief credit analyst at Mitsubishi UFJ Morgan Stanley Securities Co.
Read more: Decade of BOJ Corporate-Debt Buying Shows High Bar for Exit
Companies have also been reluctant to sell longer-dated bonds because they can often get cheaper rates by borrowing from banks, which are flush with deposits and eager to lend as a result of BOJ programs to boost loans.
Bonds sold in September by Daiwa House Industry Co., a home builder, highlight the gap in yields between different maturities. Its 10-year debt carried a coupon of 0.3%, while three-year notes only offered 0.001%.
See also: BOJ Board Meeting Sees More Calls for Virus-Era Policy Review
“I’ve requested that companies sell seven- to 10-year bonds,” said Masayuki Tsujino, a senior fund manager at Asahi Life Asset Management Co. Those tenors are better for active managers that are trying to get decent returns, while investors that are aiming to sell bonds to the BOJ are fine buying shorter notes, he said.
(Adds link to story on BOJ board member calls for policy review in the age of Covid-19.)
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