Lloyds Taps Japan’s Booming Samurai Market With ¥75 Billion Sale

Lloyds Banking Group Plc became the latest borrower to sell bonds in the booming Samurai market, where issuance has reached the highest level since fiscal year 2015 amid strong demand from yield-seeking investors.

The UK lender sold ¥75 billion ($468 million) of yen-denominated bonds on Japan’s domestic market Friday, its first such offering in two years.

Even as Japanese interest rates climb, overseas issuers are increasingly tapping the Samurai market to access Japan’s deep investor base. There is strong demand among Japanese buyers for such offerings, said Yutaka Ban, a senior credit analyst at Nomura Securities Co.

Samurai bonds are attracting demand because their relatively short maturities and wider spreads appeal to investors navigating a rising-rate environment, Ban said. He added that yen funding can remain cost-effective for foreign borrowers even after accounting for currency-swap costs.

Japanese benchmark yields remain well below those in the US and Europe, helping to preserve the appeal of the yen market for some foreign borrowers.

Samurai bond issuance rose to ¥503 billion this fiscal year, according to data compiled by Bloomberg as of June 12. That’s the highest level since 2015, when issuance for that period reached ¥538 billion.

For investors, Samurai bonds remain attractive because issuers typically offer wider spreads than comparable domestic debt.

The spread on one tranche of the Lloyds deal, six-year bonds callable after five years, was 78 basis points over swaps. That compares with 28 basis points for the 2031 notes sold in April by Sumitomo Mitsui Banking Corp., which is rated just one notch higher than Lloyds by S&P Global Ratings, illustrating the additional premium available in the Samurai market.

The Lloyds deal was managed by Mitsubishi UFJ Morgan Stanley Securities Co., Mizuho Securities Co., Nomura Securities Co. and SMBC Nikko Securities Inc.