Even though they share the name “government bond,” it is the New Window-Sold Government Bonds that will result in a loss of principal if sold early.
At bank counters, both Individual Government Bonds and New Window-Sold Government Bonds are sometimes just called “government bonds.” Both are national debt, and their safety is the same. The only difference is when you stop early.
The exit is different
Individual Government Bonds can be redeemed by the government at face value one year after issuance. The only amount deducted is the equivalent of the last two interest payments (after tax), so the principal does not drop.
New Window-Sold Government Bonds must be sold on the market if you want to stop early. The Ministry of Finance’s product summary also states, “There is no early redemption system through government buyback.”
Why are the names similar?
New Window-Sold Government Bonds are officially called “New Window-Sales Method Government Bonds.” These are regular government bonds issued for large-scale buyers like banks and insurance companies, which are also sold to individuals at counters. Since the content is the same as government bonds traded on the market, the price when selling is the market price.
Individual Government Bonds are products created exclusively for individuals. You can buy them from 10,000 yen, and the purchase price is always the same as the face value. In exchange, they cannot be sold on the market, and the government buys them back.
Even though both are “government bonds,” the exit mechanism is completely different. If you buy them without distinguishing between them, you will only realize the difference when you try to sell them early.
How much do you get back if you sell early?
The 10-year New Window-Sold Government Bonds offered in August (2.7% coupon) were priced at 99 yen 32 sen per 100 yen face value. The 10-year New Window-Sold Government Bonds in October have risen to a 3.1% coupon.
Calculating the price of the August bonds with this yield results in approximately 97 yen 10 sen. If someone who bought 1 million yen worth sells now, it will be approximately 22,000 yen cheaper (this is a theoretical estimate).
If you buy the October bonds and interest rates rise by 1% a year later, 1 million yen worth will be approximately 75,000 yen cheaper. Even adding that year’s interest, it is a loss of about 50,000 yen.
With Individual Government Bonds, even if you stop with the same 1 million yen, the 1 million yen principal is returned.
If you hold them to maturity, the story is the opposite
I recalculated the difference for 1 million yen held to maturity for the October 2026 offering.
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10 years: New Window-Sold Government Bonds are 94,352 yen higher (in August it was 88,084 yen)
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5 years: Individual Government Bonds are 4,171 yen higher (in August, New Window-Sold were 506 yen higher)
The reason there is a difference only for 10 years is that the floating-rate 10-year Individual Government Bonds are determined by “base rate x 0.66.” About 1% per year does not reach your hands. But this is the price paid for an exit that does not break the principal and for tracking interest rates.
In August, I was about to reach the opposite conclusion
When I wrote the first edition in August, I was about to conclude that “since interest rates are rising, the 10-year floating rate is the way to go for the medium term,” but after looking at the actual numbers, I rewrote it to say “the 10-year floating rate is overpriced.”
What I realized this time is that my conclusion in August was correct, but with the condition of “if you hold it until maturity.” What was missing were the figures for how much you would get back if you sold it early.
In my case
I do not hold any government bonds in my own name. All I have is 1 million yen in individual government bonds (10-year floating rate).
This is money that I plan to cash out early to transfer to my child’s NISA account between 2027 and 2029. It has been decided from the start that this will be used before maturity. Since they are individual government bonds, the principal will be returned even if I cash them out.
If you are told “government bonds” at the counter
There are only three things to ask.
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Are these individual government bonds or new over-the-counter government bonds?
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If I sell them early, will the principal be reduced?
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What is the minimum purchase amount? (If it is 10,000 yen, it is likely individual bonds; if it is 50,000 yen, it is likely new over-the-counter bonds)
The trap is not the product, but the name. Whether or not there is a possibility that you will use that money before maturity—that is the one thing even the person at the counter cannot know.
※This does not constitute a recommendation to buy or sell any specific financial product.
For those who want to know more
I have summarized the calculation premises, charts, and sources on my blog.
🎥 Click here for the video version
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