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 and supermarket giant Aeon are among those tapping the retail bond market, with the latter selling its debut retail bond on Friday (Aug 29).
The offerings are tempting non-professional investors with rates as high as 3.34 per cent on five-year notes from SoftBank Group, 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 (S$13.1 billion) in the first five months of the fiscal year started Apr 1, according to data compiled by Bloomberg. That’s after companies in Japan sold a record 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.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
“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 e-commerce giant Rakuten Group in February 2023 with a coupon of 3.3 per cent would have received about 1.07 yen million in total, including both regular interest payments and the principal at maturity. In contrast, two-year time deposits at Mizuho Bank offer an interest rate of 0.325 per cent, and comparable government notes yield about 0.87 per cent.
Safer than stocks
While the Topix index of stocks has rallied about 30 per cent since the start of last year, the gains were punctuated by sharp sell-offs of around 20 per cent 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, according to people familiar with the matter.
“As rates climb, retail investors are paying more attention to yields,” said Toshiyasu Ohashi, a visiting professor at the Graduate School of Chiba University of Commerce and a veteran of Japan’s credit market. “Yet higher yields usually mean higher risk. We need to raise financial literacy and rethink how these bonds are structured, marketed and regulated to protect individuals.”
Deals keep coming to the market, though. Aeon priced 60 billion yen of notes on Aug 29 with a coupon of 2.025 per cent.
Takatoshi Kabayama, who oversees debt issuance at Aeon’s finance department, said the expansion of tax-free investment accounts has led to growing investor appetite. “With benchmark interest rates having risen, we judged that this bond can attract investors even without offering promotional perks,” he said. BLOOMBERG