Japanese consumer lender Aiful Corp. sold bonds with the world’s lowest coupon for a junk-rated issuer this year, as record low rates amid the pandemic redefine what high yield means.
Aiful priced ¥15 billion of 1.5-year notes with a coupon of 1%, according to Nomura Securities Co., one of the underwriters. It’s the second-ever junk bond offered publicly in the domestic credit market, after Aiful priced the first such security last year at a lower coupon at 0.99%.
Unprecedented stimulus from central banks amid the pandemic has dragged down rates, and left investors clamoring for debt that may help increase returns. The average yield on high-yield bonds globally has fallen 85 basis points this year to an all-time low of 4.83%, according to a Bloomberg Barclays index. A comeback in even the riskiest junk securities is gaining ground, narrowing the gap between lower-rated and higher-quality debt.
Aiful, which teetered on the edge of bankruptcy a decade ago, has speculative-grade scores from local credit rating firms.
The lender’s junk debt offerings are still the exception that proves the rule in Japan, where companies haven’t felt compelled to sell speculative-grade notes as they’ve traditionally found it easy to obtain bank loans.
But investors have increasingly backed the development of a high-yield debt market as monetary policy that’s set to stay accommodative globally makes the hunt for yield more acute.
The growth of high-yield issuance would be beneficial to the economy because it allows a broader range of issuers to raise funds in the capital markets, a Financial Services Agency official said last year.
Challenges persist. Many investors have mandates that forbid them from purchasing junk bonds, for one thing.
But there have been changes in recent years. Japan’s Government Pension Investment Fund, the world’s biggest pension fund, revised investment guidelines in 2018 to include the buying of local debt rated below BBB.
“We would like to continue selling bonds while determining the best timing,” said Kinya Numata, manager at Aiful’s finance department.
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