The pipeline for Japanese corporate bonds is the slowest since 2023 as investors contend with uncertainty about the Middle East war.
The number of borrowers planning yen deals at the start of the new fiscal year is down about 60% from a year earlier. Demand has weakened as Iran tensions fuel more rate volatility in a market that¡¯s already under pressure due to expectations of another Bank of Japan rate hike.
This turbulence underscores how Japanese companies may not be able to rely on the credit market for a stable source of funding, even after record bond sales last financial year. Heightened geopolitical tensions have driven up credit spreads to the widest in about three months, raising funding costs for issuers.
Japan Post?and 11 other issuers are planning bond sales in April and May, according to data as of Wednesday. That compares with 29 at the same point a year earlier, and even with U.S. tariff-related volatility the credit market went on to mark a stellar year in 2025.
Credit spreads have widened to around 46 basis points this week, compared with 44.4 basis points the day before U.S. and Israeli attacks on Iran began on Feb. 28, according to the Bloomberg Asian-Pacific Japanese Corporate Index. That¡¯s after benchmark 10-year Japanese government bond yields rose to 2.39% in March, the highest in almost three decades.
Sovereign yields are also seeing unprecedented big swings on a daily basis, making it difficult for corporate issuers to price bonds given the long marketing period on Japanese deals.
¡°Volatility is high, and it is hard to tell how soon the Middle East situation will calm down, or how views on a BOJ rate hike will evolve,¡± said Kazuma Ogino, a senior credit analyst at Nomura Securities.
Overnight index swaps imply about a 70% chance of the BOJ increasing rates later this month.
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