Japan¡¯s rising bond yields are likely to widen the stock performance gap between regional lenders with weaker investment portfolios and those with stronger holdings, according to analysts.
Higher interest rates often work in banks¡¯ favor by widening lending margins if supported by central bank action. But when lenders have holdings that are vulnerable to higher yields, they¡¯re punished by investors for the unrealized losses. And the rapid pace at which yields have spiked in recent weeks suggests they¡¯re likely to underperform further.
¡°Banks facing mounting unrealized losses on bonds will find it difficult to pursue aggressive investment strategies, and one could also argue that this is eroding their capital,¡± said Naoki Fujiwara, a senior fund manager at Shinkin Asset Management. Banks also face some risk of impairment, particularly for ultralong-term bonds, he said. Lenders with large unrealized losses may need to take charges if their holdings drop to half their value.
With your current subscription plan you can comment on stories. However, before writing your first comment, please create a display name in the Profile section of your subscriber account page.