* More firms selling funds based on Japanese government
bonds
* Yields on long-term JGBs now rival those of US Treasuries
and German bunds
* Analysts expect the government to raise JGB issuance by 15
trillion yen this year
By Junko Fujita
TOKYO, Aug 12 (Reuters) - After years of paying investors
almost nothing, Japanese government bonds are suddenly worth
owning again, and domestic asset managers are hurrying to give
ordinary investors a way in.
With yields on long-term JGBs now rivalling those of U.S.
Treasuries and German bunds, Mitsubishi UFJ Asset Management has
joined Daiwa Asset Management and Amova Asset Management in
selling investment trusts focused on the super-long bonds.
Japan's 30-year JGBs trade at a near 4% yield,
higher than Germany's 30-year bond yield of around 3.6%, and
close to the 5.2% of 30-year U.S. Treasuries.
While the size of each fund is relatively small at no more than
3 billion yen ($18.84 million), their proliferation is a sign of
reinvigoration of the debt market that had been dominated by the
central bank for more than a decade.
"Until recently, you would lose money holding JGBs," said
Takayuki Yagi, an executive officer at Mitsubishi UFJ. "But now
if you have both JGBs and stocks, you can get textbook
diversification."
The Mitsubishi UFJ Asset fund, due to launch in September, will
focus on low coupon bonds with maturities of 20 years issued
during the Bank of Japan's regime of ultra-loose monetary
policy.
Prices for that tranche of JGBs have fallen sharply of late,
driving yields higher, as the BOJ carried out its long-term
normalisation of policy. But the discount pays off for buyers
who hold to maturity, receiving 100% of the face value.
The main avenue for Japanese households to invest in government
bonds has traditionally been so-called retail JGBs, on offer
since 2003 and coming in maturities of 3, 5, and 10 years. The
securities are not traded and remain a small fraction of the
overall JGB market, though the market is growing fast and the
government is aiming to increase their uptake to diversify its
investor base.
"Japan's yield curve is the steepest among major countries,
but retail investors have not really had opportunities to take
advantage of it," said Shinichi Sawamura, general manager at the
fixed income department of SBI Securities, which has been
selling JGBs with maturities between 10 and 40 years since 2021.
BOJ REDUCING JGB HOLDINGS
Finding willing buyers of JGBs is a matter of key importance
for the Japanese government. The BOJ is expected to reduce its
JGB holdings by 48 trillion yen this fiscal year and to continue
that pace of reduction, according to Takafumi Yamawaki, head of
Japan Rates Research at JPMorgan Securities Japan.
Against that, the government is expected to increase JGB
issuance by 15 trillion yen this year and to continue to tap
debt markets to fund a massive stimulus plan and tax cuts,
Yamawaki added.
Amova launched an investment trust for JGBs with 30-year
maturities in November last year aiming to deliver 4% annual
returns. The fund's assets stood at 554 million yen by the end
of June, representing slower-than-expected growth.
"Retail investors are worried that the yields may rise
further," said Takuya Kanazawa, a senior vice president of the
product development department at Amova.
So some asset managers shifted their focus to the shorter end
of the JGBs, with the 2-year yield reaching a
31-year high of 1.64% on Wednesday on bets the BOJ would raise
rates as early as September.
Daiwa Asset Management in June added an investment trust
focused on JGBs maturing in two years.
"This is going to be a competitive product against two-year
fixed deposits," said Yasuaki Matsuba, the firm's senior
managing director. "And this is good for those who cannot wait
for 30 years for the bonds to mature."
($1 = 159.2600 yen)