Corporate Bond Rates Go Negative in Japan; No End to Central Bank Madness

Companies in Japan now get paid to borrow money.

In what may be the biggest central banks sponsored bond lunacy yet, BOJ's Negative Corporate Bonds Yields Adds to Distortions.

The Bank of Japan’s purchase of corporate debt at negative yields for the first time adds to distortions in Japan’s bond markets and raises risks for investors and banks, according to Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA.

The central bank bought corporate bonds in market operations at minus 0.03 percent on Wednesday, according to data from the central bank. While the BOJ has purchased company notes at zero interest in the past, it’s the first time for it to buy the debt at negative levels, according to data compiled by Bloomberg.

“The BOJ could end up becoming the final arbiter of everyone’s creditworthiness by deciding whether or not to buy a bond,” said Nakazora, ranked Japan’s No. 1 credit analyst in an Nikkei Veritas investor poll in 2015. “Investors will be saddled with risks if credit spreads aren’t reflective of a company’s creditworthiness.”

“The market had looked at the 0.1 percent level as the floor for corporate bonds but if investors can be confident that they can sell the debt to the BOJ at negative levels, that level may come down,” said Takayuki Atake, an analyst in Tokyo at SMBC Nikko Securities Inc., a unit of Sumitomo Mitsui Financial Group Inc. “It’s a landmark that we’ve reached negative yields for corporate bonds.”

No End to Central Bank Madness

The bank of Japan is currently the only buyer of Japanese government bonds. It may quickly become the only buyer of Japanese corporate debt, assuming of course it isn't already.

Regardless, who other than a central bank would pay corporations to borrow?

Mike "Mish" Shedlock