Bank of Japan Considers Buying Debts
March 15th, 2009 at 6:53 pm - by admin
The Bank of Japan is expected by many to boost bank capital reserves by purchasing subordinated debt, said Japan’s Nikkei business daily, Monday.
The central bank is considering “a number of measures” to help raise bank capital and could have a solid plan established within the month — one of the most significant announcements, according to the daily, is to assist in underwriting subordinated bank loans.
The bank meets to discuss possible solutions on Wednesday.
Subordinated debt refers specifically to inherently higher risk debt which ranks ‘below’ other debts should a company fall in to receivership. This debt has a lower priority, and will be paid out only after other debts are paid if a bankruptcy or other financial problem is to arise.
The Japanese central bank has not made any announcements yet, but speculation suggests that news will be broken sometime after the bank formally discusses the possibility.
In December, the central bank indirectly injected $122 billion U.S. in to the market by launching a program which would grant the government the authority to purchase preferred stakes in banks, much like those purchases made in other countries internationally.
Futures for 10-year bonds rose after the news broke, as speculation increased trust and value in a number of debt markets.
Five-year bonds, however, declined after news that short-term funding will follow changes in the interbank rate for loans, which dropped to less than 0.700 percent last week, the lowest since 2007. Five-year notes fell to 0.750 per cent, a fall of one-and-a-half basis points.
The Nikkei’s source for this suggestion was a unidentified official at the Bank of Japan.
