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Japan: The teacher who invested $15 billion

The world's big borrowers have found a new source of super-cheap funding. In the past year, a group of small, hitherto almost unheard of Japanese institutions ­ most famously the Teachers' Pension Fund ­ have bought as much as $100 billion of structured Euro-MTNs. So desperate are these investors for certain types of securities that a top-rated borrower can raise funds via a private placement in Japan for as little as Libor minus 60 basis points. Garry Evans explains how

Last year the international capital markets were heavily influenced by the arrival of a new investor: Mrs Watanabe, the mythical Japanese housewife. Japanese retail investors like Mrs Watanabe bought about $20 billion of Eurobonds in the second half of 1995. The pace has slowed but Japanese individuals still put about $16 billion into foreign securities in the first six months of 1996.

And now for this year's big new investor: Mr Watanabe. But Mr Watanabe is no myth. Hiroshi Watanabe is deputy manager of the investment department of the Public Teachers' Pension Fund. Watanabe has invested, according to market estimates, $15 billion in Euro medium-term notes (EMTNs) in the 12 months since mid-1995 when the institution ­ Japan's third-largest public pension fund, with assets of ¥61.9 trillion ($590 billion) ­ decided to bring the management of a portion of its funds in-house. Watanabe invests mainly in highly structured securities such as reverse dual-currency bonds (where the principal is in yen, but the coupon is paid in a foreign currency).

Buying is on an enormous scale. Watanabe has been known to invest as much as $1 billion in a single week.

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