Banks fear huge losses on bond repacks in Japan
Negative rates threaten to cause millions of dollars of losses for dealers and investors
Sliding interbank lending rates are threatening to cause millions of dollars of losses for Japanese banks and insurers holding bond repacks, dealers fear, while many of those who acted as swap counterparties to the vehicles could also face huge fair-value writedowns.
Bond repacks – which combine a bond and a derivative into a special purpose vehicle (SPV) and pay out floating coupons to investors – have been a popular way for Japanese investors to generate extra yield in recent years.
But with
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