Asia Times: Japanese bonds rise; sales by companies, municipalities meet strong demand



	April 24, 1999	atimes.com

Japan Economy

Japanese bonds rise; sales by companies, municipalities meet strong demand

Tokyo - Japanese bonds rose asmunicipal governments and other borrowers found substantialdemand for 580 billion yen ($4.9 billion) in new bonds.

Four municipal governments, one government-guaranteedcorporation, and two private corporations sold bonds as theJapanese government completed sales of 1.4 trillion yen in newgovernment bonds. The sales met substantial investor demand andincreased the allure of fixed-income securities overall, said investors.

''There's good demand for bonds from issuers with highcredit ratings and that makes the bond market look moreattractive,'' said Masahiro Kami, chief fund manager at Daiwa SBInvestments Ltd., who manages 650 billion yen in assets.

The new benchmark No. 212, 10-year bond rose 0.44 or 219 yenper 50,000-yen bond, to 100.131, pushing the yield down 5 basispoints to 1.485 percent. Bond futures for June delivery rose 0.36to 135.06.

Municipal bond sales from Tokyo, Osaka, Nagoya, and Hyogoprefecture sold a total of 205 billion yen in bonds to investorshungry for higher yields. The 1.7 percent coupon on the bonds washigher that the 1.5 percent coupon on 10-year government bondssold Wednesday.

''There's demand for top-rated corporate names and some ofthe electric power utility companies,'' said Peter Morgan, asenior portfolio manager at Banque Nationale de Paris whooversees about $2.5 billion.

This month, municipal governments sold a combined 175billion yen in 10-year municipal bonds with 1.8 percent coupons,said traders. That's 65 billion yen more than the amount of suchbonds sold in March.

Issues with government guarantees were also popular fortheir higher coupon and low credit risk. Japan FinancingCorporation for Municipal Enterprises sold 300 billion in 10-yearbonds with a 1.6 percent coupon.

During the next few weeks, electric utilities may sell atotal of 110 billion yen in bonds, which could compete with the10-year government bonds auctioned yesterday.

Chubu Electric Power Co., Japan's third-largest electricutility company, may sell 50 billion yen of 10-year bonds,underwriters said. Chubu Electric may decide the coupon and otherdetails as early as today. Moody's rates them ''Aa2."

Kyushu Electric Power Co., another regional electric powerprovider, may sell 30 billion yen of bonds maturing in six years,10 years or 20 years, underwriters said. Moody's InvestorsService rates them ''Aa3.'' The coupon is not set.

In corporate issuance, Itochu Corp. sold to individualstoday 50 billion yen of four-year bonds with a 2.0 percent couponand 10 billion yen of five-year bonds with a 2.2 percent coupon.Moody's rated the bonds of one of Japan's Big Five trading companies ''Ba1."

''People are desperate for yield and are willing to take onthe added risk,'' said Tim Kerans, a fixed income strategist atBarclays Capital.

Traders say the Bank of Japan's policy of guiding down theovernight lending rates between banks near zero is the mainreason why bonds are still popular despite lower coupons. Withthe overnight rate averaging 0.03 percent this month investorsare buying government bonds with borrowed funds at almost nocost. The yield on the benchmark 10-year bond is 146 basis pointshigher than the overnight lending rate, above the one-yearaverage of 131 basis points.

''It's the central bank's policy that has underpinned bondprices,'' said Takeshi Naito, a senior market economist at DaiwaSecurities SB Capital Markets. ''Investors will buy bonds if theycan borrow money for nearly nothing."

''Pressure on the BOJ to ease credit will persist,'' saidMamoru Yamazaki, senior economist at Paribas Capital Markets Ltd.''The Bank of Japan must still take steps to boost the economy."

With no change in the central bank's policy in sight,securities firms are confident they will be able to sell thebonds they bought at auction yesterday as well as the remainingbonds the Ministry of Finance will distribute today.

The government accepted 827.79 billion yen in bids for the1.4 trillion yen of bonds offered for sale. The unsold bonds weredistributed to underwriters today at prices determined byyesterday's auction result.

Wednesday, investors offered to buy 2.3 times more bondsthan the amount accepted, up from the 1.57 times at the last 10-year auction in March. The strong demand pushed the average priceto 100.56, above dealer expectations of 100.50 according to aBloomberg survey.

(Bloomberg)

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