A 1% Bond in Japan Is World’s Lowest-Coupon Junk Note in 2020

Japanese consumer lender Aiful Corp. sold bonds with the world’s lowest coupon for a junk-rated issuer this year, as record low rates amid the pandemic redefine what high yield means.

Aiful priced 15 billion yen ($144 million) of 1.5-year notes with a coupon of 1%, according to Nomura Securities Co., one of the underwriters. It’s the second-ever junk bond offered publicly in Japan’s local credit market, after Aiful priced the first such security last year at a lower coupon at 0.99%.

Unprecedented stimulus from central banks amid the pandemic has dragged down rates, and left investors clamoring for debt that may help increase returns. The average yield on high-yield bonds globally has fallen 85 basis points this year to an all-time low of 4.83%, according to a Bloomberg Barclays index. A comeback in even the riskiest junk securities is gaining ground, narrowing the gap between lower-rated and higher-quality debt.

A 1% Bond in Japan Is World’s Lowest-Coupon Junk Note in 2020

Aiful, which teetered on the edge of bankruptcy a decade ago, has speculative-grade scores from local credit rating firms. The lender’s junk debt offerings are still the exception that proves the rule in Japan, where companies haven’t felt compelled to sell speculative-grade notes as they’ve traditionally found it easy to obtain bank loans.

Asia

Asian dollar bond spreads and credit-default swaps tightened Wednesday, with spreads on high-grade notes narrowing about 3 basis points, according to traders. That’s the biggest daily decline in three weeks, according to a Bloomberg Barclays index.

  • The Philippines is jumping back into the strong credit markets, starting to market what would be its second dollar bond this year
  • Demand was strong for new dollar notes, with both Hong Kong’s Airport Authority and Chinese developer Kaisa Group’s offerings over 10 times covered
  • Despite the recent strengthening of investor risk appetite, longer-term pitfalls remain. S&P Global Ratings sees a “significant risk” that more banks in Asia Pacific will join the list of fallen angels -- companies downgraded to speculative grade from investment grade -- in the next two years

U.S.

CCC bonds, which were in distressed territory for the better part of 2020, have steadily rallied since the worst days of the pandemic.

  • The difference between their spreads and those of the next rating tier up -- B rated bonds -- is now 316 basis points, near the tightest level in two years
A 1% Bond in Japan Is World’s Lowest-Coupon Junk Note in 2020
  • Investment firm Castlelake signed an agreement with Boeing to provide as much as $5 billion of financing to airlines and other companies looking to buy planes from the aerospace manufacturer

Europe

Gauges of default risk for high-quality and sub-investment grade companies in Europe retreated Tuesday to levels last seen in February before the coronavirus took hold.

  • The upbeat mood prompted eight issuers to bring deals to Europe’s market for new syndicated bonds
  • That included a euro-denominated offering from energy giant BP Plc

©2020 Bloomberg L.P.

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