"It Was Stupid Of Me" - 'Mrs.Watanabe' Battered By Turkey's Meltdown

It was not just Barclays bankers that took on the chin from Turkey's turmoil, Japan's infamous 'mom-and-pop' investors who snapped up high-yielding lira-denominated bonds "because of the yield" have been destroyed.

Thanks to the ever-present foot of the Bank of Japan on the throat of yields in Japan, small investors "reached for yield" around the world in an effort to 'safely' invest their hard-earned yen for a 'decent' return.

As The Wall Street Journal reports, Individuals have snapped up so-called Uridashi, high-yielding bonds marketed to households that are frequently denominated in foreign currencies like the lira, Brazilian real and South African rand. These aren’t highly leveraged instruments, but usually regular bonds. However, they offer juicy returns thanks to elevated interest rates in emerging markets.

The appeal is obvious after years of rock-bottom rates. A recent online offer from Rakuten Securities touted a 23.1% yield on lira debt issued by the European Investment Bank. That echoes the 10-year yield on Turkish government bonds of 20.9%, and is far above the yields available on benchmark Japanese government debt.

That army of punters often dubbed “Mrs. Watanabe,” after the stereotypical Japanese homemaker, piled $7.6 billion worth into Turkey... and that has become a bloodbath of paper (or realized losses) for those JPY-based investors as bond prices collapsed along with the Lira relative to the yen...

Retail traders using margin made roughly 1.45 trillion yen ($13.1 billion) of Turkish lira-yen trades in July, according to Financial Futures Association of Japan data. That sum is less than 1% of yen-dollar trading volumes, but has more than tripled in a year. But as The Wall Street Journal reports, many of those involved in these lucrative-for-your-broker trades, have lost fortunes.

Yasuyuki Tokue, a 49-year-old legal professional who lives near Osaka, said he bought lira bonds with a face value of 7.5 million yen ($67,500) between 2015 and 2017.

“I was attracted by the high interest rate,” Mr. Tokue said. However, he said he ended up losing 1.2 million yen when he sold some bonds back to his broker in April, and his outstanding holdings have fallen in value.

”I made a mistake,” in failing to hedge currency risk, Mr. Tokue said.

We suspect few of them realized (or cared) that there is no market for trading Uridashi, brokers can buy them back at face value in the local currency for a fee, and sell them back to the underwriter or to another investor. In Mr. Tokue’s case, he said he paid fees equal to between 3.2% and 8% of the total on the different bonds he sold.

Another investor in Yokohama said he had lost about 300,000 yen on lira bonds bought in 2012, or about 65% of his original outlay including commissions.

“I’ve learned a lesson,” said this investor, who declined to be named. “It was stupid of me to invest in a single emerging-market bond.”

Of course, when all else is lost, there's always hope... Mr. Tokue said the damage to his overall portfolio wasn’t that serious and his remaining position could regain some value.

“You never know - the lira may not be that cheap in the distant future,” he said.

We wonder if Mr.Tokue would be interested in some Tesla bonds, we here they are offering great yield advantage and upside potential.