[TOKYO] US asset manager BlackRock is considering launching an exchange traded fund (ETF) on the Tokyo Stock Exchange (TSE) that will allow Japanese investors facing negative yields at home exposure to international bonds without currency risks, a senior BlackRock executive told Reuters.
"Whether we would go first from our global fixed income portfolio or tailor towards different segments of the fixed income markets is a strategic decision my product team is working on. But clearly we see a significant opportunity in bringing global fixed income exposure to Tokyo," said Jason Miller, managing director of BlackRock Japan.
BlackRock's interest reflects the newfound popularity of yen-based foreign bond investments among Japanese investors since the Bank of Japan adopted negative interest rates in January, chilling domestic bond yields to sub-zero levels.
Japanese investors bought about 9 trillion yen (S$109.06 billion) of foreign bonds after the BOJ announced on Jan 28 that it would drop the interest rate on some excess reserves deposited at the BOJ to minus 0.10 per cent.
Most Japanese institutional investors do not want currency exposure on their holdings, however, so they typically hedge their foreign bond currency risk through swaps and forwards.
While big banks and life insurers have dedicated staff to do this work, some smaller institutional investors which have had a strong home bias thus far and limited staff, rely on other asset managers to handle foreign bond investments.
The ETF could meet the needs of those institutional investors, many of whom are now happy to invest in any fixed income product that provides a positive yield.
At the moment, there are six international bond ETFs listed on the TSE but none of them are currency-hedged.
BlackRock's offering could also be good for the TSE, which is keen to entrench its status as Asia's biggest ETF market.