Posted by: Kenji Hall on May 1, 2009
The global financial crisis left many Japanese investors with a lot less than they started off with. Japanese investment trust funds—which are similar to mutual funds in the U.S.—lost 37% in value, falling to $518 billion between October 2007 and March of this year. So how are Japanese managing the risk of their portfolios?
By investing in U.S. junk bonds.
That’s according to a Reuters report today that tells how Japanese, eager to invest in high-yielding securities, are piling into mutual funds specializing in junk bonds.
Thanks to the influx, the U.S. junk bond market is off to its most promising first quarter in 18 years. Among the favored funds is the Nomura U.S. High-Yield Bond Investment Trust, which has nearly quadrupled in size to 426 billion yen ($4.4 billion), since its launch in late January. Other firms are jumping in to get a piece of the action.
But there could be a price to pay for the high returns. Standard & Poor’s Rating agency, which like BusinessWeek is owned by McGraw-Hill, said last week that U.S. junk bond default rates may jump to 14.3% by March 2010 from 5.42% last month.