Japan retail bond market booms amid turmoil

TOKYO Dec 26 (Reuters) - The global credit crisis may be taking the wind out of most financial markets but in Japan the retail corporate bond market has started to boom.

Blue-chip companies spurned by portfolio-savaged institutional investors are turning to individuals, who in turn are attracted by the bonds -- seen as safer than stocks, with steady returns and without foreign exchange risks.

Firms tapping the market for the first time include Mitsubishi Corp (8058.T), Japan's biggest trading house, with its first yen-denominated retail bond worth 100 billion yen ($1.1 billion), as well as Mizuho Bank, the core bank for Mizuho Financial Group (8411.T) and Daiwa Securities Group Inc (8601.T).

In December alone, seven companies issued retail corporate bonds totalling nearly 600 billion yen, 27 times the amount a year ago.

All of the seven companies are rated at least BBB plus -- investment grade with little risk of default.

"Retail corporate bond issuance is expected to stay robust, and the current high pace should continue for a while," said Tetsuya Miura, bond strategist at Shinko Securities.

"Both issuers and distributors of retail bonds will need to attract individual investors' money as long as Japanese capital markets are not functioning well."

Japan's institutional investors have become exceptionally leery of taking on more risk, burned by debt defaults from domestic real estate firms and defaults on yen bonds from U.S. investment bank Lehman Brothers and Iceland's Kaupthing Bank.

But to individual investors, who have watched Tokyo stocks plummet 43 percent this year and the yen's rise to 13-year highs against the dollar erode the lure of overseas assets, domestic corporate bonds have suddenly become more attractive.

"Retail bonds sell well because investors love the blue-chip names," said Miura.

The boom in retail bonds boosted the total amount of overall corporate debt issuance to a decade high of 1.3 trillion yen in December, sharply higher than 315 billion yen in November and 352 billion yen in October.

But analysts said the jump in retail bonds was not expected to kick-start a recovery for the overall primary bond market, with institutional investors unlikely to regain their appetite for risk amid a global recession and financial turmoil.

"Is the credit crunch going away? Certainly not," said Toshiyasu Ohashi, head of credit research at Daiwa Securities SMBC.

"Only firms with very high credit ratings are embarking on issues at the moment, so the primary market has not yet normalised." All wholesale corporate bonds issued in December had an A rating or higher, with the majority rated AA. (Additional reporting by Takefumi Ito and Naoyuki Katayama; Editing by Edwina Gibbs)