Japanese government bonds, after years of delivering near-zero returns to investors, have suddenly regained their appeal as domestic asset managers hurry to open access for ordinary investors. With long-term JGB yields now rivaling those of U.S. Treasuries and German Bunds, Mitsubishi UFJ Asset Management has joined Daiwa Asset Management and Amova Asset Management in launching investment trusts focused on super-long-term bonds.
Japan's 30-year bonds are trading with yields approaching 4%, surpassing Germany's 30-year Bund yield of around 3.6% and nearing the 5.2% level of U.S. 30-year Treasuries. Although each fund remains relatively small—no more than 30 billion yen (about $18.84 million)—their rapid emergence signals a revival and growing dynamism in a bond market long dominated by the central bank.
Where to Begin
"Until recently, holding JGBs would result in losses," said Takayuki Yagi of Mitsubishi UFJ Asset Management. "But now, if you allocate both JGBs and stocks, you can achieve a textbook-style diversified portfolio." The fund planned for launch in September by Mitsubishi UFJ will focus on low-coupon bonds with 20-year maturities, issued during the Bank of Japan's ultra-loose monetary policy era. As the BOJ advances its long-term policy normalization, prices of these JGBs have recently fallen sharply, pushing yields higher. For buy-and-hold investors, however, such discounted purchases offer substantial returns, as they will recoup full face value at maturity.
The primary channel for Japanese households to invest in JGBs has traditionally been so-called "individual JGBs," available since 2003 with maturities of 3, 5, and 10 years. These securities are not traded on the market and still account for a small share of the overall JGB market, despite rapid growth as the government works to boost their acceptance and diversify the investor base.
The Appeal of Just 10 ASX 200 Shares?
"Japan's yield curve is the steepest among major nations, but retail investors have had little opportunity to exploit this," said Shinichi Sawamura, general manager of the fixed-income department at SBI Securities, which has been selling JGBs with maturities from 10 to 40 years since 2021. The BOJ is reducing its JGB holdings, and finding willing buyers is crucial for the Japanese government. Takafumi Yamawaki, head of Japan interest rate research at JPMorgan Securities Japan, estimates the BOJ will cut its JGB holdings by 48 trillion yen this fiscal year and maintain that pace. He added that the government is expected to increase JGB issuance by 15 trillion yen this year, funding large-scale stimulus and tax cuts through debt markets.
Amova launched a trust targeting 30-year JGBs in November, aiming for a 4% annualized return. By end-June, its assets stood at 554 million yen, growing slower than expected. "Retail investors are concerned yields may rise further," said Takuya Kanazawa, senior vice president of product development at Amova. Consequently, some asset managers are shifting focus to shorter-term JGBs. The 2-year JGB yield hit a 31-year high of 1.64% on Wednesday, as markets bet the BOJ might raise rates as early as September.
Daiwa Asset Management added a trust in June focused on JGBs maturing within two years. "This will be a highly competitive product compared to two-year time deposits," said Yasuaki Matsuba, managing executive officer at Daiwa. "For those unwilling to wait 30 years for bond maturity, it's also a good option."
Comments