Japanese investors really don’t care what a foreign rating agency has to say about their credit. And since they are the biggest buyers of Japanese debt, their sentiment matters a lot.
In fact, after hearing last week that Moody’s cut Tokyo’s sovereign debt rating to Aa3 — bringing it in line with China, Taiwan and Chile — the Japanese bond market shrugged.
If anything, Japanese government bonds (JGBs) are seeing a much better bid than one might expect.
Prices on 10-year JGBs edged up 7 basis points on the news, keeping the yield at a minimal 1.02% despite the country’s apparent fall from ratings-agency grace.
Corporate bonds fared somewhat worse since they are now facing a knock-on downgrade if they were rated above Aa3 previously.
This is another indication that not everything rises and falls according to the rating agencies’ opinions. You can see the strength in JGBs — and maybe even trade their continued popularity among Japanese investors — via JGBT and the ultra-long JGBL, which promises to deliver triple the performance:
Other “international” bond funds, such as IGOV, generally keep about 20% to 25% of their assets in JGBs as well.
And if the bond market is taking this as a non-event, don’t expect Moody’s to have unintentionally handed the Bank of Japan any gifts in the form of a weakening yen.
The yen and the associated currency fund FXY are as strong as ever today: