A Quirk of Japan’s Credit Market Is Hurting Some New Debt Sales

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A quirk of Japan’s credit market that results in companies often selling bonds on Fridays is becoming more entrenched, hurting demand for some deals that get lost in the flood of offerings all on the same day.

Unlike credit markets elsewhere where issuance often falls off on Fridays, the day has long been busy in Japan and the pandemic is making it even more so. Japanese firms traditionally take five days from launching to pricing bonds. That leaves Friday as the default for avoiding deals stretching across weekends, when news developments could skew prices -- a growing threat amid Covid-19 headlines.

A Quirk of Japan’s Credit Market Is Hurting Some New Debt Sales

More than 60% of yen bonds have been sold on Fridays in fiscal 2020, the highest proportion ever, according to Bloomberg-compiled data. The flurry is overwhelming some investors’ capacity to choose. That’s all the more so as corporate bond sales overall have jumped to records, buoyed by stimulus measures to fight the economic impact of the coronavirus crisis.

“Two companies are about the limit for one analyst to do new credit analysis on in a single day,” said Shunsuke Oshida, head of credit research at Manulife Asset Management in Tokyo. “For companies that are selling bonds for the first time or new issuers, it’s better to avoid busy days.”

The busiest single day for sales in the period was also a Friday, July 10, when corporates priced 919 billion yen ($8.6 billion) of notes.

Parts of bonds priced on that day by Lixil Group Corp. and Dydo Group Holdings Inc. were left unsold amid the deal rush, according to people familiar with the matter, who asked not to be identified because it’s a sensitive topic. However, the underwriters told the companies the notes were sold out, according to spokespeople for the two firms.

See also: BOJ Stimulus Sparks V-Shaped Recovery in Company Bond Sales

Issuers’ preference for Friday sales goes back at least to the 2008 global financial crisis, when market-moving news coming out over the weekend forced many bond deals to be canceled, according to market participants.

Shortening the marketing periods for securities could help companies space out their deals, without having to worry about the weekend.

Overseas note sales by Japanese firms and yen debt deals by foreign companies usually only take one to three days to wrap up, according to Akihiro Igarashi, an executive director at Nomura Securities Co.’s syndication department in Tokyo.

“There’s some merit to take time to market a bond,” said Igarashi. “But doing so puts both investors and issuers at risk of market moves and event risk, so reducing the marketing period in the Japanese market is an issue that should be studied.”

©2020 Bloomberg L.P.

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