April 11, 2012

Japan Avoids Spanish Bonds

Rising yields don’t lure investors

The electronic board of a securities firm in Tokyo. (Photo: AP) The electronic board of a securities firm in Tokyo. (Photo: AP)

As yields continued to rise on Spanish sovereign debt, Japanese investors said they were not tempted by the increases and added that such investments were in too much danger from the continuing debt crisis.

Bloomberg reported Wednesday that, wary of the volatility of Spain’s economy, large Japanese investors were steering clear of not just Spanish, but in some cases also Portuguese, Italian and Irish bonds as well. Figures from the Ministry of Finance in Tokyo revealed that in the 12 months ending Feb. 29, Japanese investors sold a net $43.8 billion of euro-denominated bonds.

Among firms avoiding Spain as an investment even as yields climb are Kokusai Asset Management Co., which runs Asia’s largest mutual fund; Mitsubishi UFJ Asset Management Co., a division of Japan’s largest publicly traded bank, and Diam Co., a segment of the nation’s second-biggest life insurer.

Spanish 10-year bonds gained nearly 1% over the past month and early on Wednesday morning in London hit 5.92%. But it is not tempting Japanese investors. Nor is the rising yield on similar-term Italian bonds, which over the same period gained 69 basis points to hit 5.61%.

“I’m not planning to add Spanish or Italian bonds anytime soon,” Masataka Horii, who runs the $21.2 billion Kokusai Global Sovereign Open Fund in Tokyo, was quoted saying. “The European crisis is moving toward a resolution, but that doesn’t mean the issue is fully solved. It’s not time yet to increase euros.”

Yoshiyuki Suzuki, who helps oversee the equivalent of $68 billion as the head of fixed income at Fukoku Mutual Life Insurance Co. in Tokyo, is steering clear of not just Spanish debt, but that of Portugal, Ireland and Italy as well.

“I won’t invest,” he was quoted saying. “They’re very risky. The economic situation is very bad in the euro area and will get worse. I am focusing on French bonds and German bonds. They will be good investments.” This despite the fact that he expects the yield on German 10-year bonds to drop to 1.5% by the end of 2012. Their record low of 1.636% was reached Sept. 23.

Finance Ministry records indicate that Japanese investors shed the equivalent of $54.3 billion in euro-denominated debt last year, the most since 2005.

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