Are the New Bonds from Sumitomo Mitsui Finance and Leasing a Buy? Considering the Interest Rate Spread Against Government Bonds

Sumitomo Mitsui Finance and Leasing plans to issue 5-year corporate bonds (yen-denominated) for individual investors. The provisional interest rate range is 2.450% to 3.450% per annum (before tax).

Receiving regular interest payments from a creditworthy company is an option worth considering for investors who prioritize income.

However, even for bonds from good companies, the attractiveness of the investment changes depending on the interest rate.

For me, these bonds are positioned as something I would consider purchasing if the rate is around 3% per annum or higher.

The interest rate has not yet been determined.

The bonds being issued this time are the 58th unsecured corporate bonds.

The term is 5 years. They are scheduled to be issued on November 5, 2026, and reach maturity on November 5, 2031. The purchase unit is 1 million yen, and the provisional interest rate range is 2.450% to 3.450% per annum (before tax).

The interest rate is scheduled to be determined on October 23, and the subscription period is scheduled from October 26 to November 4. The application period varies depending on the securities company.

There is a range in the provisional conditions. The evaluation will change significantly depending on whether it is set at the lower limit or approaches the upper limit.

Creditworthiness is relatively high.

Sumitomo Mitsui Finance and Leasing is a major leasing company with 50% capital participation each from Sumitomo Mitsui Financial Group and Sumitomo Corporation.

The issuer ratings are AA from R&I and JCR, and A- from S&P, with a stable outlook for all. It is positioned as investment grade even by S&P.

As an investment destination for corporate bonds, I consider the creditworthiness to be relatively high.

However, having a major group as a shareholder is different from that shareholder guaranteeing the payment of principal and interest. The investment target is ultimately the company known as Sumitomo Mitsui Finance and Leasing.

How much more can you receive compared to government bonds?

I want to compare this with the ‘Fixed 5-Year’ Japanese Government Bonds for individuals.

The interest rate for the October 2026 offering is 2.39% per annum.

If these bonds are set at the lower limit of 2.45%, the difference from government bonds is 0.06 percentage points per year. Even if you invest 1 million yen, the difference in after-tax interest would only be about 478 yen per year.

For me, this is not enough compensation for taking on the company’s credit risk.

On the other hand, if it is set at 3% per year, the difference from government bonds is 0.61 percentage points per year. For every 1 million yen, you can receive approximately 4,861 yen more per year after taxes.

If it is at the upper limit of 3.45%, the difference is approximately 8,447 yen per year.

It is important to think not only about whether the interest rate is high, but also about how much higher it is than government bonds. (Corporate bond spread)

Consider using funds that you can hold for 5 years

If you sell corporate bonds before maturity, you may lose principal. If interest rates rise or the creditworthiness of the issuing company declines, the selling price may fall. It may also become difficult to liquidate.

With individual government bonds, you can redeem them mid-term at face value one year after issuance, subject to a predetermined interest adjustment. This ease of use also has value.

Also, since you are holding them for 5 years at a fixed interest rate, if interest rates rise after that, you will miss the opportunity to invest at a higher interest rate. You also need to be aware that inflation will reduce the purchasing power of your money.

This is how I judge it

I think this corporate bond is a strong candidate as an investment destination for earning regular interest in yen.

However, if the final interest rate is around 2.45%, I would prioritize government bonds. If it is around 3% or higher, I would consider purchasing it with a portion of my yen funds that I will not use for 5 years.

This is a guideline for my own judgment. When the conditions are finalized, I would like to compare them with government bonds and other corporate bonds at that time.

Lending to a creditworthy company at a satisfactory interest rate spread.

I would like to value this perspective in corporate bond investment.