Euroweek Japan report, September 2013: supranational roundtable

Euroweek Japan report, September 2013

For SSA investors, Japan represents a mixed picture: scarcely any opportunity in yen, but strong participation in dollar globals, with a mature retail base ready to pick up structured or high yielding vanilla paper through uridashi tranches. Leading SSAs explain to Chris Wright how they view the funding opportunity in Japan.

Participants:

Sandeep Dhawan, head of America, Asia and Pacific division, capital markets, European Investment Bank

Ben Powell, senior financial officer, IFC

Søren Elbech, IADB

Alexander Liebethal, funding department, KfW

Bart van Dooren, head of funding and investor relations, BNG Bank

Tom Meuwissen, general manager treasury, NWB Bank

Huib-Jan de Ruijter, Director, financial markets, FMO

Vince Purton, Daiwa

Steve Apted, managing director, SMBC Nikko

Moderator: Chris Wright, Euroweek

Euroweek: Through what methods, and in what currencies, do you access the Japanese investor base? What proportion of your funding do yen, and Japanese investors, represent?

Sandeep Dhawan, European Investment Bank: In the last few years, Japanese investors have steadfastly accounted for around 10-15% of our annual funding program. The attraction of Japan is that it is a market where we can access a multitude of currencies, in a number of structures, from a wide variety of investors, across a range of maturities – all from one small geographical region. That makes Japan hugely important and very productive from an issuer’s perspective.

Some ninety per cent of our total funding is in three core currencies – dollars, euros and sterling – and that is reflected in Japanese distribution as well.

But yen is negligible for you. Why so little yen?

Dhawan: The short answer is, the numbers don’t stack up. Our funding costs and desired levels are such that, if you translate them back into yen, they are through JGBs. That doesn’t make sense for Japanese investors unless they are looking to diversify. This has been true now for a number of years. The basis swap plays a role in this, as do JGB and yen swap levels, and these factors have led to a decline in our yen issuance.

Ben Powell, IFC: When we talk about Japan in general, it represents a big part of IFC’s funding programme, and has been for a long time. When the IFC’s programme really started to grow from the mid-2000s, we started to issue more and more into Japan through uridashis and structured notes, when that market was starting to take off. At one stage half the programme was into Japan in various shapes and sizes.

Japan is very interesting for issuers such as ourselves, in that we can work with so many institutions and so many classes of investors. It’s unique, really. We have connections through the retail houses, from small retail through to the large institutions like Mizuho and Mitsubishi; the medium-sized enterprises that have been the structured note buyers; then the regional banks and the asset management community, the insurance companies and bank treasuries. On top of that are the official public institutions that invest in our global benchmark transactions.

If you look at the mix of our funding in the last few years, Japan accounts for between 30 to 40% of programme funding. As for yen, in the year ending June 2013, JPY accounted for 5% of our $11.5 billion in total fundraising.

Søren Elbech, IADB: Japan is a shareholder in the IADB, and a long-standing supporter of the bank and our capital market activities. For a decade we have had a strong following of investors: in official institutions, the banking sector, institutional investors and retail.

Our funding program increases and decreases from year to year, and the contribution of Japan goes up and down too, as you would expect. From 2008 to 2012 Asia Pacific constituted between 30% and 47% of our investor base on the institutional side, and Japanese retail on top of that ranged between 1% and 18%. In 2010 we borrowed just under $12 billion, 47% of it from Asia Pacific institutions and 5% Japanese retail; in 2011, we borrowed $6.7 billion, 36% of it Asia Pacific institutional and 5% Japanese retail; and in 2012 we borrowed $12.1 billion, 41% of it Asia Pacific institutional, and 1% Japanese retail.

Keep in mind that the Japanese retail base, depending on yield and currency levels, have appetite for particular structures: specific currency pairings, coupons or redemption structures. There are some of those we don’t offer, so there are parts of the market where the Scandinavian agencies will be more active. We don’t offer the same amount of structured products as other borrowers do.

Alexander Liebethal, KfW: The Japanese investor base fits KfW pretty well. We access them predominantly through highly structured products as well as plain vanilla. These days, our funding in yen is made up of structured MTNs and uridashi, and yen accounts for roughly 2% of our total funding this year so far. Historically his figure was a little higher, as a function of issuance in public yen: however the yield environment is not allowing us to do so this year.

But that 2% underestimates the importance of our Japanese investors. Up to 10% of our bonds in the primary market are placed to Japan, across euro or US dollar benchmarks or non-yen uridashi bought by retail. For example, the Australian dollar has played a very important role as the yield differential is significant.

Bart van Dooren, BNG: Since we started borrowing in the international capital markets in 1995, Japan has become one of our most important regions in the world. The mix of institutional and retail investors has been important to us, not so much in terms of yen issuance – because that’s been very limited in the last few years – but the trend of Japanese investors in other currencies.

In 2011 our total funding in yen was 0.1%, in 2012 0.04% and this year so far 0.4%. There was a trend a couple of years ago when European asset managers or insurance companies could do euroyen issues, but that demand has completely dried up. But in 2011 3% of our total issuance was placed to Japanese investors, last year 31%, and this year 8.7%.

The institutional investors are focusing on dollars, euros, and Australian dollars in the kangaroo format. Retail investors are mainly in the high yield deep discount currencies like the Mexican peso, Turkish lira and South African rand, where investors take a view on the currency and look for a coupon they can’t find in their domestic markets.

Of course there are uridashis, but they normally offer short maturities, and that’s not our favourite part of the market. Also, most of those are structured, and we are very cautious and conservative in issuing structures. The World Bank and the Scandinavian issuers are by far the biggest in that market.

Yen loans are drying up a bit: the last one we closed with a Japanese investor was back in 2008. Our last samurai was post-Lehman in 2009. We have hoped to do more but we have to swap everything back into euros, which is expensive. But in the other direction, it is attractive for Japanese institutions to invest in our dollar and euro benchmarks and swap it back into yen. We have seen enormous tickets in the benchmarks last year.

Tom Meuwissen, general manager treasury, NWB Bank: Japanese investors buy us in all sorts of currencies including euros, US dollars, Australian dollars and yen. The yen proportion is bigger when it comes to number of deals than to size. They are mainly structured deals. Our strategy is that we try to be as flexible and fast as possible when it comes to reverse inquiry from investors.

Japanese investors are very active in our benchmark deals in US dollars and euros, and are the major buyer of our kangaroos. We don’t have an uridashi or samurai programme.

Huib-Jan de Ruijter, FMO: It’s a very important market. Pre-2008 we used to fund ourselves here pretty much exclusively in private placement markets, particularly structured notes, and a very large part of our funding at the time came from Japan. We had been able to build long term relationships with investors which were very important when the crisis hit. When it did, the structured product funding stream dried up and we needed to look for alternatives in more public funding, which is when we started to access the samurai market, building on those relationships with investors. At the moment I would say about 25% of our funding is in yen, and the number of Japanese investors in our global deals, including Aussie dollar funding, is around 27%.

I think you are the only AAA-rated SSA to raise a samurai in the last few years. Why did it make sense to do so?

De Ruijter: A number of reasons. One was that it is a strategic market for us. We are committed to the relationships we have with Japanese investors. So we are not purely looking at it from a cost perspective. We have a relatively small funding programme, and therefore are not necessarily able to offer the large benchmark deal size in main currencies like euros or dollars. The maximum we do in dollars is $500 million. The size of yen transactions suits us very well in our overall liability management.

What do the bankers see in SSA issuance trends?

Vince Purton, Daiwa: SSAs are almost the mirror image of sovereigns when they issue in Japan. Sovereigns come in plain vanilla samurai – urdiashis are possibly a bit too structured for them. But the supranationals, largely because of the way the basis swap has been, have found it difficult to get cost competitive levels in straight yen. FMO’s samurai in 2012 was the exception that proved the rule. So instead, the interest of the supranationals in Yen tends to be via the structured market. There are a variety of instruments: the dual currencies, the equity-linked trades, and there has been a fairly consistent bid for them.

Another area for the SSAs has been plain vanilla non-yen, originally focussed on USD, AUD and NZD but in recent years predominantly in AUD, Turkish lira, South African Rand, Brazilian Real and so on, where the absolute coupon has been attractive to investors. The problem there over the last 12-18 months was that the absolute rates on offer to Japanese retail had until recently plummeted. Coupons of 7 or 8% or higher, depending on the precise currency used, had fallen in many cases to 4 – 5% or even lower, and that had changed the whole balance between risk and reward, and made investors a lot more cautious. But there are signs now of a resurgence in this area of demand as global rates are off their lows and potentially moving consistently higher again in the medium term.

Generally Japanese uridashi investors will take credit risk or currency/structure risk, but not both. They love AAA names in markets where the investor rakes the currency/structure risk, which is where SSAs fit in uridashis; or they take credit risk but no currency risk, which is where the AA/A/BBB sovereign samurais fit in.

Steve Apted, SMBC: Supranationals find it very difficult to access the samurai market: the all-in cost is not competitive compared to other markets. But SSAs can still access the Japanese capital market quite comfortably through the EMTN or uridashi route, and on the whole that business continues to tick along fairly well. Fashions in uridashis come and go; certain currencies come in and out of favour, and that has been important in a year when some emerging markets have suffered. But ultimately you would expect that to be temporary, and once markets like Turkey stabilise we should see uridashi volume again in those currencies.

Is Abenomics having a positive impact on your ability to raise funds in Japan?

Apted: Abenomics has had a number of effects, the most important of which is to make Japan relevant again to international issuers and investors. That’s what I hear a lot: the simple fact that Japan is important again, and everyone wants to know what is going on there. That has caused issuers to perceive Japan as being strategic once more: everyone has woken up to the fact that Japan has huge pools of savings. And the large currency move we have seen has obviously attracted some Japanese investors to look overseas into non-yen benchmark paper. It’s been good all round.

Dhawan: It’s too soon to say. The markets have anticipated three things to happen from Abenomics: a weaker yen; lower JGB yields; and greater money supply. None of that has happened with any degree of clarity just yet, but it is early days. However, if those things were to happen, it would imply increased foreign investment.

Earlier in the year, there was a significant rally in euro and dollar markets attributed to Japan demand, but it turned out to be a classic case of front-running anticipated flows. For our part, we didn’t see any difference in the distribution of our bonds into Japan, pre or post-election. It may change over time, but hasn’t happened yet.

Powell: Yes, I would say the combination of Abenomics and tapering have had an impact on the markets where we fund. Abenomics brought a sudden weakening of the yen and there was, from some of the large investors, some profit-taking, some retraction from non-core currencies, as a result. And then combined with tapering, there was capital flight away from emerging market currencies. Obviously Japanese investor activity was caught up in that as well.

Liebethal: I think it’s neutral. KfW has not seen a big impact to the upside or downside. Nevertheless, we are paying attention to it, because it has driven a strong rise in the equity market. This has had an impact on equity-linked uridashi products. But in general, investor flows are stable.

Van Dooren: It’s difficult to say yet. Japan had to do something, without any doubt: the economy has to grow. With debt to GDP of close to 245% and an ageing population, they have to find a solution. They are on the right track.

I don’t know to what extent Japanese corporates will return to the bond market domestically. If they do, then I assume foreign issuers will have a bit more difficulty entering the market. A lot depends on the exchange rates, dollar-yen and dollar-euro. Whether Japanese institutional or retail investors will focus more or less on foreign issuers like us will really depend on that.

Meuwissen: Because of the low yield environment at home, Japanese investors are looking more abroad for investment. That has been going on for the last couple of years. They are also looking for safer names, so we definitely benefited from this situation. In this sense, Abenomics might also have a positive impact.

De Ruijter: Our practical experience is that there hasn’t been much of a difference. We continue to see some secondary demand in our dollar paper from Japan, so it helps us there, but on the yen side the basis swap has been punitive for some time. In practice, the consequences of Abenomics have not really been visible.

Purton: People have to appreciate the backdrop to this, which is the Japanese psyche. In April when there was all the publicity about Abenomics, there were a couple of large dollar global trades done by SSAs, and I remember everyone saying it was a tidal wave of Japanese money leaving the JGB market. And we thought: what? The Japanese don’t take decisions overnight like that. At the beginning of April they are working out their asset allocation decisions for the year ahead. They don’t see an announcement on day one and pile into something new on day two.

Psychologically, yes, Abenomics gives a boost to the samurai market, and new money is coming in, but how much of that is primarily due to Abenomics? It seems strange to say, six months on, but it’s still too early to tell. There are other key decisions coming up that can equally impact the domestic financial environment – the consumption tax decision is one of these.

What are the key differences in market circumstances this year?

Elbech: There’s no doubt that developments in various capital markets influence the demand we see from different kids of investors. But we have seen continued very strong demand from institutional investors out of Japan, have tapped the market several times this year, and have been pleased with what we have seen every time. We are predominantly a US dollar-based borrower, and mostly long-dated; at the end of the day demand depends on each investor’s own risk appetite and strategic allocation given the macro environment

Dhawan: We are yet to spot any trends in this year different to previous years. Trends in and from Japan take a long time asserting themselves.

So, for example, at any given time, a strengthening yen, lower JGB yields or poorly performing domestic equities lead to a reasonable amount of outflow from Japan into other currencies. Each of these factors along with a large scale reversal of the carry trade that has led to the Japanese basis swap going deeply negative, in recent years, have had a role to play.

Powell: Issuing in yen has always been challenging, particularly since 2008 when the basis swap widened dramatically. It has taken a long time to come back. The majority of the issuance we do is swapped to floating dollars, and it’s rare that vanilla JPY has provided a viable source of funding for us compared to other markets. Euroyen and samurai have been an expensive proposition for us for some time.

There is a shift in the names issuing in uridashi. You see more bank names and lower rated credits, particularly in the plain vanilla space. As rates have come down in some of the classic Uridashi currencies like Australia, Brazil and Turkey, we have noticed that lesser-rated credits are getting a larger part of the vanilla pie. At the same time there has been tremendous growth in the structured uridashi market: equity-linked, FX-linked, dual-currency – an area that is dominated by the Nordic agencies.

Meuwissen: Swaps are getting more expensive, so it might be more difficult to bring attractive levels to investors.

Liebethal: Movements in the currency have an impact on highly structured dual currency products, which are on the rise. Yield enhancement plays an important role: the desire to benefit from FX moves. We also see that plain vanilla transactions in more exotic emerging market currencies are temporarily very much on the decline, which is self-explanatory given recent moves in those currencies.

Van Dooren: There is a combination of Abenomics and the exchange rate. Also, some Japanese investors may be reaching their limits on foreign investments, which may lead to less interest in participating in foreign issues. But on the other hand, if you are offering yield, that is attractive to Japanese accounts. When we started our kangaroo programme we only wanted domestic participation; these days if we have 10% domestic placement we are pleased, and the bulk goes into Japanese accounts.

Apted: Look at the key differences in market circumstances this year. The yen has gone from 80 to 100. The Nikkei has gone from 9,000 to 14,000. And government bond yields have been steady: they are still 0.8 on the 10-year. You could say that Mr Kuroda’s QE is working now: a stronger Nikkei, weaker yen, with government bonds steady would be exactly what he and Mr Abe were after. We are definitely in a new paradigm now.

How have you been able to use the Japanese markets to provide investor diversification? How differentiated from other investors is the Japanese market, in terms of investor behaviour and expectation?

Dhawan: Japanese demand can be kaleidoscopic with interest in a large variety of currencies and products. We sell not just our core currencies but the Scandinavian ones, emerging market ones – the whole gamut. You can market durations from 30 year bullets to callable periods as short as three months. You can do this because of the existence of the accumulated savings of a range of investors, from retail to institutional to bank treasuries to government. There is a variety of platforms to issue from: MTN including uridashi, samurai bonds, global bonds. You can slice and dice products to address demand in this market in a zillion different ways.

Liebethal: It could not be better. The Japanese investor base is well educated, whether institutional or retail. They are diverse in the sense that they do avoid credit risk but know a lot about market risk, that’s our impression. The investor base itself is probably the most diversified you have in Asia. You have everything there: from retail clients to big institutional, all different investor types.

Elbech: The institutional investor base is as professional as the rest of the world: the same type of approach to credit, the same dialogue and questions. When you delve into the retail uridashi investor base, that is a vast pool of investors that you need to take the time and effort to understand – how it works, who the players are, what banks to get involved with. It is a multi-year commitment.

Powell: Japanese investors have a lot of appetite for top-rated names such as ourselves. They provide such diversity for our borrowing program. They have a long history of looking at other currencies, given where yen rates have been for a long time. It is a unique market given the range of different investor classes we can do business with.

The markets where we’re active are emerging market currencies in vanilla format, and the structured note market. That has worked very well for the last few years: the equity-linked market in particular has been a market we have entered into the last few months. You have to try to be nimble and flexible, and adapt to where the demand is coming from.

Meuwissen: An example is issuing kangaroos, where Japanese investors provide diversification over Australian investors.

De Ruijter: For us, the mainstream access to Japanese investors has been through our samurai program. On top of that we have accessed different investors through the Aussie dollar market. Then there continues to be demand for private placements, particularly in the long end, though they tend to be challenging from a pricing perspective. Up to the crisis, we used to get a lot of structured funding from Japan, but nowadays we prefer non-structured funding.

What tenor do you find investors want?

Liebethal: That really depends. Buy and hold investors are looking for the long end of the curve in euros and dollars; more speculative investors look more at the short tenors.

Van Dooren: It varies. Uridashis have short maturities, two, three, four years. We can go up to 10 years in dollars with extremely good participation. Beginning this year, we have seen regional banks all over the curve: we saw a Japanese asset manager yesterday in our three-year dollars, but you also see them in five and seven.

What is the key to successful marketing of Japanese issues?

Meuwissen: The key is flexibility, and to be investor oriented.

Powell: Regularity. You have to pay attention to all the different strata within the investor classes. We are in Japan pretty regularly as a result: we meet regularly with the public institutions, our banking counterparts, and different asset managers. We try to target roadshows based on each kind of investor class. We did a roadshow in March on our way to Australia, where we focused on accounts that look at Australian and New Zealand dollars. We target the products we want to talk about, and match the roadshow to that. We are focusing on broadening our outreach to smaller securities houses in Japan, where our name is less well known, putting our name forward as a prospective name for uridashi transactions. Also, we’ve established an investor relations unit which has been up and running for a year now, and we have also a IFC Treasury representative in Tokyo for the first time who will help establish relations with all market participants in Japan. That will add real value to the program, being able to provide a flow of information in Japanese.

Liebethal: You have to be very reliable and transparent. You have to be present in the market with continuous issuance. Quality and speed are very important, and the smoothness of documentation. The variety of product is important, and an understanding of the spillover effects and synergies between them; and finally the responsiveness to investor needs, in terms of structures, tenors and currencies. We travel to Japan to see them at all hierarchy levels. We have been active in the Japanese capital market for more than 25 years.

Dhawan: Japan has always been of strategic importance to the EIB and our marketing efforts continue to be focused and intensive. We’ve been marketing in Japan for many years now so it’s not a question of introducing ourselves, more a matter of updating investors regularly. As with many of our key investors, the Japanese too have some concerns surrounding the European sovereign debt crisis. However, unlike some, they still see EIB as strong and stable, with the added benefit of offering excess returns over its peer group. Japanese investors have been steadfast supporters of EIB for so many years, it’s not their inclination to flee at the first headline.

Elbech: We undertake several missions a year to the country, we have a country office there, and we feel we are on the ground to cater to our close ties with the country.

For uridashi, you need to have a long-term strategy and to understand the relationship. You need to make sure it is understood what you want to do, and then make sure you do what you said you were going to do. Then, you will be rewarded with loyalty and demand for your paper. We as a borrower don’t change that much from year to year, and our credit certainly doesn’t, so that reliability and predictability goes down well with investors. The market is dominated by domestic banks, and their distribution capability is awesome. That needs to be understood.

Increasingly investors are interested in more dialogue about sustainability, green issues, and poverty reduction. It may have been exacerbated by the tragedy in Fukushima. We try to find out how we can ensure investors get the awareness they are looking for.

Van Dooren: They prefer you go there at least once a year, even if they already know you extremely well and have a large exposure to your credit. They want to see you and sit around the table for a discussion. Whereas in the past, they talked about BNG, now they start with how Europe is doing, or the Dutch economy.

Ten years ago, even doing a presentation in English it was difficult to get any questions when roadshowing in Japan. I’m not sure if it’s the language, but that has changed completely. The new generation step up and are heavily involved: they were educated in the US and the UK, their English is fluent, and they ask questions in detail about your balance sheet, business model and strategy.

De Ruijter: I would say it’s a long term approach which requires a commitment from the issuer. We have built up stable relationships over a long period of time, which appreciate the fact that we do come back on a regular basis. Sometimes you pay a little bit extra to offer investment opportunities to Japanese investors, so you can keep coming back.

And what do the bankers think are the keys to successful marketing?

Purton: The key to it is very simple. You’ve got to engage with Japanese investors face to face, on a regular basis, and on a detailed level. Most SSAs do that and it’s what the Japanese appreciate. Whether they are able to invest in anything there and then or not doesn’t matter: it’s creating an impression that there is a long-term relationship and dialogue, rather than an intention to dive in and grab what they can and disappear.

One side of that is the themed bond market in uridashis: the vaccine bonds and water bonds and so on. Once deals like that are done, Japanese are looking for regular updates on how the proceeds are being used in terms of that underlying theme. The more information that is provided, the more interested the Japanese are in looking at a new transaction later on.

Apted: It’s the big picture things like consistency, reliability, transparency. These would be my watchwords. Whether institutional, retail or regional, investors all appreciate consistency from issuers. They don’t like to see issuers change targets or strategy.

How do you weigh up the various merits of samurai, EMTN, urdiashi, euroyen, Tokyo pro-bond and so forth?

Dhawan: To make a sweeping generalization, for EIB, the Japanese market can be broadly split into two. One part is the market that we access when we’re doing benchmarks in various core currencies where we actively solicit demand prior to issuing. The other is made up of Uridashis, MTNs, Samurais and so on, which for us, is largely reverse-enquiry driven and by definition incoming. We simply need to match the nature of the demand being seen with our issuance objectives at that particular time.

Elbech: The more flexible you are, the more diverse an investor base you can gain. The drawback is bureaucracy – our own bureaucracy, that is – and cost. So in our assessment of how we can best raise the funds we need, we have so far tapped our global debt facilities, MTN program, uridashis and euoryen. We have not ventured into samurais for a long time: the cost has been a deterrent.

Liebethal: We have to look at our funding requirements and costs. For the time being, the uridashi and structured MTN markets suit us best, offering funding at attractive costs. On the negative side, uridashi documentation is cumbersome, but it is worth considering carefully. MTN is straightforward in documentation, but funding volumes are smaller than in uridashi. The other markets are unfortunately shut for KfW, just because of the low yields.

Van Dooren: For each and every issuer the criteria is diversification. You want to have a pallet of possibilities. We don’t see a lot of EMTN reverse inquiries from Japanese investors – that’s more Taiwan related. When they show up, it’s in samurais, and for retail, in uridashis.

How challenging are the rules and regulations?

Dhawan: Japan has vastly simplified the rules and regulations over the years to make access to domestic investors easier for issuers. EIB is slightly different to some supras who have Japanese shareholding; we do not. So we have certain documenting and reporting obligation to the Japanese authorities associated with our issuance, particularly in uridashi and samurai formats. Whilst these are not onerous, they have certain unintended consequences such as somewhat higher costs per issue which in turn lead to our imposing a certain minimum size, larger than would otherwise have been the case, for our issues.

Is it true to say that the Japanese market has less expectation of liquidity than other markets?

De Ruijter: Yes, and that’s particularly important for an issuer like FMO who isn’t looking to do the really large benchmarks. In our last deal, for example, we capped it at Y20 billion, which would have been too small for a public deal in euros or dollars. In Japan, it works very well.

Dhawan: We would not make that generalization. In vanilla products, there is every expectation of liquidity from Japanese investors. They are not necessarily hold to maturity accounts: banks, insurers and treasuries always trade so expect liquidity. On the structured product side there is a lower expectation of liquidity, as there should be. Having said that, in recent years a lot of structured product issuance in Japan has been of a short duration, and if it’s callable, with very short lock-up periods. In other words, early redemptions play the role of providing liquidity.

Powell: In structured notes, because it’s such a tailor-made product – particularly in the private placement market, where you might make it for just one or two investors sometimes – the reduction in liquidity is the price you pay for having something tailored to your needs. We, along with many other issuers, have a very flexible active buyback programme where we have bought back structured notes, particularly in 2009. That really showed that there was limited liquidity in the structured note market. In the vanilla emerging market products, there’s pretty good liquidity in those markets. You find European buyers who look at the secondary market in uridashi and pick up quite a bit of paper.

Liebethal: It depends on the product and the investor. Some Japanese investors are very active in the secondary market, others are more conservative. You need a stable investor base, but also liquidity in the plain vanilla products. Big institutional buyers in Japan have significant amounts of money to be invested, and they expect liquidity, which is what our benchmark programmes provide.

For retail clients, particularly in structured notes, they see it as a buy and hold investment. In most cases, the products have knock-out features, and when they are terminated we are happy to see those investors returning to KfW again, to refinance, so to speak. It’s a win-win situation: we offer a safe haven product, whether vanilla or a structured note for yield enhancement, and investors like our name.

Van Dooren: What we notice with issuance in high yield deep discount currencies – Mexican peso, Turkish lira – is an active secondary market. Japanese institutional investors are really buy and hold, their investments are continuously increasing, and we don’t see any inquiries for buybacks from them. It’s mainly the retail, when they want to take a profit and invest in something else.

Elbech: Liquidity expectations are no different to what we see elsewhere.

Meuwissen:  Our bonds are especially liquid when you want to sell them. Buying might be more difficult since a lot of investors in our name our buy and hold.

Do the bankers see demand for liquidity?

Purton:  At the risk of extreme simplification, Japanese investors are usually categorised as being buy and hold accounts. That is not completely true. But they are more buy and hold than investors in other markets. In samurais, they are often looking for an investment for the life of a transaction, not just the first few months. That means there is less of an obsession with liquidity.

That means you immediately cut the link between issue size, liquidity and tenor. If you look at the global dollar market you’ve got to do a billion minimum, in three or five year, because those are the liquid tenors and the minimum size deemed consistent with an adequate secondary market. In Japan you can do unusual maturities: six years for Mexico, Poland once did 15 years three months, whatever maturity fits your own requirement. And if you want to raise $235 million, then you raise $235 million: you don’t have investors saying you’ve got to do $1 billion. It becomes an issuer-friendly market, not held hostage for liquidity reasons.

Apted: It depends which investor base. But in non-yen, Japanese investors buying US treasury bonds expect the same liquidity as anyone else. And I would challenge anyone to say the JGB market is less liquid than US treasuries. Japanese investors understand the different liquidity of the different products they invest in. And on retail, if you are in structured notes, by definition you are entering into a less liquid product than plain vanilla. But I’m not convinced Mrs Watanabe has less liquidity than the Belgian dentist. I don’t fully buy that.