Japan's asset managers rush to sell JGB funds as yields climb

Japanese government bonds (JGBs) are attracting renewed interest from asset managers, who are rolling out new investment products for retail investors as yields climb to levels not seen in years.

Mitsubishi UFJ Asset Management is the latest firm to enter the space, joining Daiwa Asset Management and Amova Asset Management in offering funds focused on super-long JGBs. The move comes as 30-year JGB yields hover near 4%, surpassing Germany's 30-year bund yield of around 3.6% and approaching the 5.2% yield on comparable US Treasuries.

"Until recently, you would lose money holding JGBs," said Takayuki Yagi, an executive officer at Mitsubishi UFJ. "But now if you have both JGBs and stocks, you can get textbook diversification."

The Mitsubishi UFJ fund, slated for a September launch, will target low-coupon 20-year bonds issued during the Bank of Japan's ultra-loose monetary policy era. Prices for these bonds have dropped sharply as the BOJ normalised policy, pushing yields higher. Investors who hold to maturity receive the full face value, making the discounted bonds attractive.

Retail investors have traditionally accessed JGBs through non-traded securities with 3, 5, and 10-year maturities, available since 2003. These remain a small slice of the overall market, though the government wants to expand uptake to diversify its investor base.

"Japan's yield curve is the steepest among major countries, but retail investors have not really had opportunities to take advantage of it," said Shinichi Sawamura, general manager at SBI Securities' fixed income department, which has sold JGBs with maturities between 10 and 40 years since 2021.

The push to attract retail buyers comes as the BOJ reduces its JGB holdings by an estimated 48 trillion yen this fiscal year, according to Takafumi Yamawaki, head of Japan Rates Research at JPMorgan Securities Japan. The government is expected to increase issuance by 15 trillion yen to fund stimulus and tax cuts.

Some fund managers are focusing on shorter maturities to address investor concerns about further yield increases. Daiwa Asset Management launched a fund in June targeting two-year JGBs, positioning it as a competitor to fixed deposits. "This is good for those who cannot wait for 30 years for the bonds to mature," said Yasuaki Matsuba, the firm's senior managing director.