The Development Bank of Japan (DBJ) has long been a champion of the offshore yen market, and the state controlled policy bank again proved the case in early June when Merrill Lynch and Nikko Citigroup sold ¥75bn of Aaa/AA- bonds guaranteed by Japan. The 10 year global issue carried a coupon of 1.6%, translating to a spread of 4bp over JGBs. The deal proved yet another success for DBJ. EuroWeek asked Tomoki Matsuda of DBJ's treasury department for his views on the deal and the bank's issuance strategy.
Why the choice of the global yen market for the ¥75bn offering in June?
Matsuda: In terms of cost-targeting, the issuing costs in global yen, US dollars and euro formats were all reasonable at that time, but we finally decided that we could issue at the lowest cost using the global yen format. The spread was at that time lower than of our domestic guaranteed bonds.
There was some comment in the market that ¥75bn might have been slightly too large for conditions in the global yen market. What do you think?
Matsuda: We consider that ¥75bn was appropriate for maintaining liquidity in the secondary market. Recently, the spread between that bond and JGBs in the secondary market has tightened considerably, and it confirms our view that the ¥75bn issue was appropriate.
Merrill Lynch was an interesting addition to the normal rank of lead managers for international yen deals. Can you explain your choice?
Matsuda: We always provide the same opportunities to all bookrunner candidates and aim to promote fair competition among domestic and foreign houses. We choose bookrunners with the right capabilities to issue in various formats such as global yen, euro, and dollar at reasonable costs, and appreciated their proposal.
Why the choice of the 10 year maturity and does that again reflect improved sentiment towards Japan?
Matsuda: We make the most of being guaranteed by the government to lower the issuance costs, therefore prefer to issue long term transactions. Moreover, we are no longer issuing ultra-long term bonds this year from the viewpoint of our asset and liability management, so accordingly, the 10 year maturity is the best choice in our situation.
What efforts have you made in the past year to improve your visibility with international investors and do you think those efforts paid off with this transaction?
Matsuda: We adopted a 100% pot system with no retention in the June issue, and it certainly helped us to accurately assess the various houses' capabilities for issuing and selling in the global yen market. In terms of distribution of the issue, many major UK and European investors who were underweight the 10 year sector came in.
What large and notable issues have you completed in the Japanese domestic bond market this year?
Matsuda: This year we had completed four Filp issues [bonds issued by government agencies without the state guarantee] by October, two ¥50bn issues at five years, ¥50bn of 10 year bonds and ¥30bn of four year notes.
We are now preparing our next 10 year benchmark.
Can you give a view on the key trends in the domestic bond market, in terms of investor appetite at various maturities and pricing?
Matsuda: Before August, investors were largely inclined to have a positive view of the recent recovery in the Japanese economy and their appetite towards bonds therefore diminished.
However, since the middle of August, those positive views on the recovery have eroded with the recent weak macroeconomic indicators.
The basic trend of investor appetite has been stronger towards medium to long term bonds.