18-04-2025
Japanese municipal bond deals fail to sell as rate swings surge
Local governments have failed to sell out bonds at several recent offerings, marking a shift in what has traditionally been a stable market, said people familiar with the matter.
This month's heightened market volatility, driven by U.S. tariff policies and uncertainty over a potential Bank of Japan rate hike, have also led to delays and cancellations of several Japanese corporate bond offerings.
Unsold bonds are also being covertly peddled at discounted prices, according to several market participants, including investors, who spoke on condition of anonymity as the information is not public.
These include offerings from Tokyo Metropolitan Government, which priced ¥20 billion ($140 million) of bonds on Wednesday, and Japanese local governments which jointly offered ¥136 billion of bonds last week.
Tokyo priced its 10-year bond at a 14 basis point spread, while the joint bond was priced at a spread of 15 basis points over the government bond curve. These bonds, scheduled to be issued on April 25, are already paying 5-6 basis points more than a comparable transaction in March.
But institutional investors have been demanding even bigger spreads amid elevated volatility, and the 1 basis point premium offered by the Tokyo Metropolitan bonds over other local offerings was insufficient to entice buyers, the people said. The larger size of the joint issue also weighed on demand.
"We have received reports that it was more difficult than usual to sell,' said Makiko Hashiguchi, director of bond section, budget division, bureau of finance, at the Tokyo Metropolitan Government but added that they did not receive any reports of unsold bonds from the syndicate members.
There was no response to a request for comment from the internal affairs ministry.
The public relations office of Mizuho Bank, declined to comment.
Japan's corporate bond market has also been roiled by the turmoil sparked by U.S. trade policy. Tepco Power Grid, Yamaha Motor, Asahi Group Holdings, Suntory Holdings, Nissin Foods Holdings and Nippon Express Holdings have all either postponed or canceled bond offerings, following their announcements.
