After sitting out in 2018, Japanese retail investors are renewing their interest in rupee denominated bonds, expecting the currency to remain largely stable or even appreciate going forward.
According to investment bankers, marquee global banks are again promising high returns to Japanese retail investors in the form of rupee denominated bonds, known as uridashi bonds. Goldman Sachs has already issued two tranches of bonds so far this year. The latest one, to hit the market on Tuesday, coincided with rupee’s sharp rise against the dollar. The local currency closed at 70.49 a dollar, up 0.60 per cent from its previous close of 70.91.
In 2018, total issuance of this bond was only Rs 2,832.5 crore, compared with Rs 5,822.1 crore in 2017. Rupee’s rapid loss in 2018 made the holders of the bonds lose out on exchange rate fluctuation and so the issuance fell. So far this year, Rs 438 crore worth of bonds have been issued, less than half of 2017 level, but the pace is expected to rise once election results are declared by April-May, bankers said.
The bonds also carry a coupon, or are issued at a discount to face value. The investors’ interest is in gaining on the interest rate. Watanabe, as the Japanese retail investors are known as, invest in these emerging market currency bonds globally as her bank in Japan offers near zero per cent interest on deposits. The Goldman bonds, even with zero coupon, are issued at a discount implying a yield of 6.947 per cent. Long years of low interest rates in Japan forced retail investors there to bet on currencies worldwide, from the 1990s. Speculators and carry traders often influence the exchange rate of some currencies, but they are far from holding the sway on Indian currency. When one moves from a higher interest rate-bearing currency (rupee) to a lower one (yen, euro or dollar), the party with the rupee gets a forward premium. The forward premium takes care of the coupon rate on the bonds.