By Anton Bridge and Miho Uranaka
TOKYO, July 8 (Reuters) - Japanese asset managers, including the units of Mizuho and Nomura, are rushing to launch bond funds to meet soaring interest in Japanese debt as higher interest rates mean attractive yields for the first time in decades.
The market is deepening as more Japanese firms issue bonds as a source of growth financing and Japan's asset managers are banking on their expertise in the corporate bond market to attract funds from investors slowly upping
their allocation to yen-denominated debt.
A yen bond fund established by the asset management arm of Mizuho Financial Group, Asset Management One (AMO), has secured its first mandate to manage funds on behalf of a Western institutional investor, two people familiar with the matter said.
The people declined to be named as the deal has not been made public. AMO declined to comment.
AMO, also partially owned by life insurer Daiichi Life, launched an actively managed yen bond fund aimed at foreign investors in February - its first in around 30 years.
Overseas investment in yen-denominated bonds has picked up after the Bank of Japan started normalising policy in 2024, allowing bond yields to trend higher.
"It's hard for an obscure asset manager in the Far East to attract investors to, say, a global equity strategy, so we thought about the unique value that we could deliver from Japan," said Takeshi Miki, senior executive officer and head of the institutional investor fiduciary management department at AMO.
Over the past two years, AMO has restructured its global sales division to strengthen its yen bond offering, moving away from its previous focus on equities, Miki said.
Nomura Holdings' asset management arm is also launching an actively managed bond fund - incorporating JGBs and corporate bonds - and expects to win a management mandate from an overseas institutional investor, said Yuji Ishida, head of client portfolio management at Nomura Asset Management in Tokyo.
It has hired Richard Hastings, formerly at Goldman Sachs Asset Management, as client portfolio manager in a bid to strengthen fixed income sales and widen its product lineup, Ishida said.
"I think yen bonds are our biggest growth area. We're preparing for foreign investors to go from underweight yen bonds to neutral or overweight," Ishida said.
TIMING MARKET ENTRY
French asset manager Amundi moved to a neutral-slightly overweight position on Japanese bonds in its global portfolio for the first time in decades in February.
Since then, the risk of higher inflation - caused by war in the Middle East and uncertainty surrounding Japan's fiscal position - and further interest rate hikes prompted a shift to slightly underweight.
"Right now interest rates are still on an uptrend so we're adopting a wait-and-see approach, but the rally is bound to run its course, so we're trying to gauge the best timing for entry," said Shinichiro Arie, managing director and co-head of the fixed-income department at Amundi Japan.
Other investors are looking at carry trades that hold corporate bonds to maturity.
"Investors are asking what yields they can get by holding for three years, what model portfolios can you put together for us," said Tetsuji Hayashi, product specialist at Sumitomo Mitsui DS Asset Management.
A-rated corporate bonds stably generate a spread of around 50 to 60 basis points over JGBs, so investors gain from both the fixed spread and the yield on JGBs, Hayashi said.
And as the yen depreciates, currency hedging lifts overseas investors' returns further.
COMPETITIVE ADVANTAGE
Corporate bonds are a differentiating factor for domestic asset managers as others lack the knowhow to analyse Japanese companies' debt, said AMO's Miki.
And the market is deepening as Japanese firms are increasingly turning to bonds as an alternative funding source for growth.
BlackRock, which has actively managed Japanese bond portfolios since 2006, launched the world's first yen-denominated active corporate bond ETF this year, primarily targeting domestic financial institutions and individual investors.
"The thinking was that launching this kind of ETF would drive up demand from both individual and institutional investors. As a result, liquidity will continue to improve, which then makes it easier for foreign investors to participate," said Hiroshi Watanabe, managing director at BlackRock Japan.
(Reporting by Anton Bridge and Miho Uranaka; Editing by Stephen Coates)
