Japan bond blowout funnels corporate borrowers to convertibles

Japanese companies are increasingly turning toward convertible bonds as the prospects of a surge in fiscal spending and central bank rate hikes raise the cost of traditional debt instruments.

The benchmark 10-year bond yield hit 2.38% in January, the highest since 1999, as investors positioned for an election in which both sides pledged to ramp up government spending. With longer-term yields at levels unseen in decades, stocks have rallied after Prime Minister Sanae Takaichi’s historic election victory, changing the calculus on corporate financing.

Investment bankers are betting that convertibles — bonds that can be exchanged into stock — will emerge as the big winners, with a banner year in 2026.