Yen Bond House: Nomura

IFR Awards 2022
4 min read
Takahiro Okamoto

Strategy and insight
In a year of elevated market volatility, Nomura set a positive tone for the international and domestic yen bond market, providing strong insights and meeting issuers' and investors' needs. Those skills make the bank IFR's Yen Bond House of the Year.

Yen Bond House

The yen bond market in 2022 was roiled by the Russian invasion of Ukraine, US rate hikes and frantic efforts by the Bank of Japan to keep yields suppressed under its yield curve control policy, but Nomura led issuers confidently through this environment.

Against such a challenging backdrop, global banks – the key issuers in the international yen bond market – were hesitant to visit Japan for funding in the first quarter, knowing that Japanese pension funds would be absent from the market due to their investment losses.

With a late start to the calendar year, the decision of who would reopen the market was a delicate and important one. Nomura put forward Lloyds Banking Group as the first FIG issuer of the Japanese fiscal year.

"The first deal of the fiscal year sets the stage for the rest of the year, so who comes first is important," said Akihiro Igarashi, Nomura's head of debt syndicate. "The market turned volatile in February and March, so the first deal was even more important and needed to be something investors really like to buy."

A global systemically important bank's total loss-absorbing capacity bond issue would not have been an ideal choice, because a TLAC bond requires Japanese investors to accept a high risk weighting. But Lloyds was able to skirt the concerns as it is a domestic systemically important bank, not a global one. Nomura thought a successful deal from the UK credit would encourage other issuers to follow suit.

As Nomura predicted, Lloyds' six-year non-call five holdco senior bond transaction in May received an enthusiastic response. The issuer's first yen deal since 2019 drew ¥115.1bn (US$900m) of demand from more than 100 investors, including pension funds. As a joint bookrunner and documentation manager, Nomura had recommended the issuer choose the Samurai format, as opposed to the issuer-friendly euroyen format, as the former would help the borrower reach a wider range of investors, a necessary approach given the challenging market environment.

“Asset management firms have been opting for the Samurai format since fall in 2021, so the issuer accepted [our recommendation],” said Naoyuki Takashina, co-head of international DCM at Nomura. “This boosted both size and the number of tickets.”

The positive tone Lloyds brought was disrupted in June when the Bank of Japan geared up its efforts to bring the yield curve under control. Lloyds was followed by BPCE in July and HSBC in September, comfortably raising more than ¥100bn each, with Nomura a joint bookrunner on both trades.

Nomura also garnered attention as it sole-led a number of sizeable deals. The insights that came from the bank's team in London focused on analysing regulatory capital requirements for FIG issuers certainly helped. Its syndicate team in Tokyo, meanwhile, knew what each Japanese life insurer needed in terms of investments. The joint efforts resulted in Australian and Canadian banks selling bail-in-able bonds of nearly ¥150bn to those investors.

Nomura, second in Refinitiv's international yen bond league table with an 18.4% share, was also involved in other key Samurai deals for the year, including Hungary's ¥75.3bn four-tranche transaction in February, Indonesia's ¥81bn four-trancher in June, Mexico's ¥75.6bn five-part trade in August, Credit Agricole's ¥96.8bn four-tranche deal in December, and another offering from BPCE worth ¥70.7bn later that month.

Notably, Nomura broke one of Japan's odd traditions to keep the domestic market from stalling when it assisted City of Yokohama's ¥10bn 10-year deal as a joint lead manager in November. Usually, all Japanese municipal bonds sold in the same month price at the same spreads.

However, big investors were frustrated with this rigid pricing practice, especially amid rising yields and elevated volatility. The 10-year bond ultimately priced at 25bp over the JGB curve, about 5bp wider than the previous municipal bond deals, putting an end to the inflexibility.

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