Development Bank of Japan prints $1 billion fixed-rate notes

The Development Bank of Japan (DBJ) priced a $1 billion five-year bond deal yesterday -- the largest bond transaction ever by the government agency in the US dollar supra-sovereign agency market. The notes, which are set to mature on April 20, 2015, are rated Aa2 by Moody's and AA by Standard and Poor's.

The bonds will pay a semi-annual fixed-rate coupon of 2.875% and were re-offered at 99.456 for a yield of 2.993%.

Initial guidance was set at mid-swaps plus 27bp, which one banker on the deal said was in line with where other Japanese government agencies were trading in the secondary market.

Arrangers of the deal noted very little price sensitivity for the announced guidance and indeed the bonds were priced at 27bp over mid-swaps, which at the time of pricing was equivalent to a spread of 41.4bp over the five-year US Treasury yield.

By late afternoon in Asia yesterday, the new bonds had tightened to 38bp over Treasuries.

"The spread against Treasuries is quite important for some investors" said Makoto Wakamatsu, director of debt capital markets at Barclays Capital Japan. This is the case even though swap spreads have been tightening.

One banker close to the deal said the pricing occurred on the back of volatile market conditions with Treasury spreads having been "quite unstable" over the past three weeks.