What is a 'Sushi Bond'

A sushi bond is a bond issued by a Japanese issuer in a market outside Japan and denominated in a currency other than the yen. Very commonly, the issuing currency will be in U.S. dollars. A sushi bond bears a fixed rate of interest. Sushi bonds are primarily issued by Japanese corporations on the Japanese bond market for Japanese investors.

Sushi bonds are especially popular with Japanese institutional investors since these bonds are out of regulation of jurisdiction by the Bank of Japan and thus, do not count toward regulatory legal limits on ownerships of foreign securities holdings. A sushi bond is essentially a colloquial term for a Eurobond or Eurodollar bond from a Japanese issuer.

BREAKING DOWN 'Sushi Bond'

A sushi bond may be sought out by a Japanese company for a number of reasons: to capitalize on new investment opportunities, access cheaper funding alternatives or to refinance foreign currency liabilities. Japanese institutions that wish to add an element of currency diversification to their bond portfolios are logical buyers for sushi bonds.

One key characteristic of a sushi bond is that it primarily occurs as an exchange between two Japanese firms on either side of the transaction. Because the sushi bond is issued by a Japanese investor in a different currency than the Japanese yen, it is considered a foreign currency bond. Sushi bonds are common among Japanese industrial firms and are often acquired by Japanese insurance companies. When a Japanese insurance company buys a sushi bond, they are able to acquire the bond at higher prices but lower interest rates than other prospective buyers may have been prepared to pay.

Advantages of a Sushi Bond

A sushi bond falls under the umbrella of regulatory arbitrage practice for Japanese security holdings. Regulatory arbitrage practices aim to reduce unfavorable regulation prompted by legal standards and produce more favorable, often times, more profitable results for the investor or buyer. In other words, they are essentially loopholes that companies, institutions and investors can scale to their advantage. Many regulatory arbitrage practices such as sushi bonds can be found through offshore or foreign market transactions, as the regulatory rules are outside market jurisdictions. 

According to the book, Restructuring Japanese Business For Strategy, Finance, and Management, IBM is a famous example of a Japanese company using sushi bonds to their advantage. Sushi bonds were especially popular in 1985, but became less so as the value of the yen strengthened.

RELATED TERMS
  1. Japanese Government Bond - JGB

    Japanese Government Bond (JGB) is a bond issued by the government ...
  2. Foreign Bond

    A foreign bond is a bond that is issued in a domestic market ...
  3. Discount Bond

    A discount bond is a bond that is issued for less than its par ...
  4. Bond Buyer 11

    The Bond Buyer 11 (BB11) index is a theoretical and estimated ...
  5. Bond Power

    Bond power is a legal form authorizing the transfer of ownership ...
  6. Bond Option

    A bond option is an option contract in which the underlying asset ...
Related Articles
  1. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  2. Investing

    Spice Up Your Portfolio With International Bonds

    Going global can add flavor and diversity to an otherwise bland basket of bonds.
  3. Investing

    How Currency Risk Affects Foreign Bonds

    Foreign bond investors take advantage of higher interest rates diversifying their holdings. Learn about the increased risk from currency instability.
  4. Investing

    Market Reversals and How to Spot Them

    Learn what market reversals are and a method that can be used to spot and trade them, called the sushi roll strategy.
  5. Investing

    Corporate Bonds for Retirement Accounts

    Corporate bonds are usually the preferred choice in retirement accounts. Here are some of the benefits of corporate bonds, and strategies for a portfolio.
  6. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  7. Investing

    U.S. Corporate Bonds: The Last Safe Place to Make Money

    There aren't many other sources right now for relatively safe, steady income.
  8. Investing

    Why Companies Issue Bonds

    When companies need to raise money, issuing bonds is one way to do it. A bond functions as a loan between an investor and a corporation.
  9. Retirement

    Should I Invest in Bonds After I Retire?

    Yes, retirees should invest in bonds, but remember that not all bonds are safe investments. Seek the help of a financial advisor.
  10. Investing

    Why Muni Bonds and Bond Funds are Perfect Together

    Municipal bonds and bond funds differ in several ways, which is partly why they complement each other well.
RELATED FAQS
  1. What determines bond prices on the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market and why bond prices and yields ... Read Answer >>
Trading Center