Japanese companies issued $6.8 billion in euroyen convertible bonds during the January-to-June period, approaching the highest level in 22 years, according to LSEG data cited by Nikkei Asia on July 22. The issuance volume marked the highest since the first half of 2004, when it reached $11 billion. Rising stock prices drove the expansion, as convertible bonds allow foreign investors to gain equity exposure while mitigating downside risk, and companies can raise funds at lower interest rates compared to conventional corporate bonds amid a rising rate environment. The surge reflects growing demand for instruments that provide access to Japan's artificial intelligence and semiconductor sectors while offering downside protection, according to Odell Lambroza, chief investment strategist at US-based Advent Capital Management.
Nippon Steel, JX Advanced Metals, and Advantest Issue Convertible Bonds
Nippon Steel issued ¥600 billion in convertible bonds in March as part of financing for its US Steel acquisition. JX Advanced Metals issued ¥250 billion in convertible bonds in June for share buyback purposes. Advantest issued ¥100 billion in convertible bonds in April to expand its semiconductor test equipment supply capacity. Convertible bond issuance becomes less attractive when stock prices decline due to potential earnings-per-share dilution, but recent stock price gains supported the increased issuance volume.
Foreign Investors and Hedge Funds Drive Demand for Japanese Convertible Bonds
Foreign investors allocated capital to convertible bonds to avoid direct equity trading risks, as the instruments enable profit through stock conversion while providing partial risk mitigation. Companies benefit from lower interest rates compared to conventional corporate bonds, allowing them to raise funds at reduced costs in a rising rate environment. Investment in Japanese convertible bonds has been primarily driven by hedge funds, but long-position demand has also increased recently, according to a managing director at Nomura Securities.
Schroders Increases Japan Allocation in Global Convertible Bond Fund
UK asset manager Schroders raised the Japan allocation in its flagship global convertible bond fund from 6% to 8%. An investment officer at Schroders stated the allocation could potentially expand beyond 10% in the future. Alain Eeckman, global head of convertible bond management at UBS Asset Management, stated the increased issuance volume will enhance diversification in a market currently concentrated in the United States. Global convertible bond issuance reached $129.6 billion in the first half of the year, with US companies accounting for 63% of the total, according to LSEG data.
FAQ
What was the total value of Japanese convertible bond issuance in the first half of the year?
Japanese companies issued $6.8 billion in euroyen convertible bonds during the January-to-June period, the highest level since the first half of 2004 when issuance reached $11 billion.
Which Japanese companies issued convertible bonds and for what purposes?
Nippon Steel issued ¥600 billion in March for US Steel acquisition financing, JX Advanced Metals issued ¥250 billion in June for share buyback, and Advantest issued ¥100 billion in April to expand semiconductor test equipment supply capacity.
How did Schroders adjust its Japan allocation in its convertible bond fund?
Schroders increased the Japan allocation in its flagship global convertible bond fund from 6% to 8%, with a potential for further expansion beyond 10% according to an investment officer at the firm.
