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.
Accelerate and then also we have continued to ramp up in energy here recently um considering the risk of you know prolonged uh issues
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.
