Japan Credit Market Update: Investors run for Sumitomo cover ahead of jumbo debt offer

The banking and electronic sectors were the most traded in Japan’s credit default swap market this week, driven by a new jumbo subordinated debt offer from Sumitomo Mitsui Banking Corporation and continued interest in the electronics sector.

Credit protection for Sumitomo was in good demand this week as the bank started a roadshow to market $1 billion of 10-year subordinated debt. In addition to the global bond, the local Japanese media reported that Sumitomo is also reviving plans to sell ¥40 billion of sub-debt. The bank had earlier cancelled plans to issue the sub-debt due to poor market conditions, but is now expected to sell the debt by the end of the month.

Protection on Sumitomo’s 10-year subordinated debt is currently quoted around 250 basis points, compared with about 215bp a week ago. One dealer noted: “There are more and more protection buyers on the sub-debt.”

As a result, the spread of Sumitomo’s 10-year sub-debt credit default swap is likely to continue to rise in coming days. The dealer believed Sumitomo’s task will be challenging, especially given the large amount of funds it is seeking to raise and current negative sentiment from international investors towards Japanese banks.

The electronics sector also saw some active trading this week, although spreads remained within a tight range – finishing the week about 3bp wider than where they were last week, said another trader. Five-year protection on Fujitsu was quoted at 90bp and Toshiba at 92bp.

Dealers noted that the Fifa World Cup, being co-hosted by Japan, again kept trading activities subdued. Friday afternoon in Tokyo was especially quiet as traders turned their attention to the Japan versus Tunisia game, which would determine whether Japan would make it past the first round.

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