The cost of insuring corporate and sovereign bonds in Asia from non-payment fell to an almost four- month low after policy makers in Europe pledged to do whatever it takes to preserve the euro.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan dropped 7 basis points to 160 basis points as of 8:41 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. The index is headed for its lowest close since April 4 and a second consecutive monthly decline, according to data provider CMA.
European Central Bank President Mario Draghi is trying to build consensus among governments and central bankers for a plan to ease borrowing costs in Spain and Italy before ECB policy makers convene on Aug. 2. Berlin, Paris and Rome have already endorsed his approach, which involves Europe’s rescue fund buying government bonds on the primary market, and Draghi will meet with U.S. Treasury Secretary Timothy Geithner in Frankfurt today.
After positive comments on the weekend supporting the ECB’s position, “traders are unwinding bought protection,” Mark Reade, a credit analyst at Credit Agricole SA in Hong Kong, said in a phone interview. “There’s still potential for credit to rally over the next couple of weeks given the positive backdrop, the low rate environment and thin liquidity as a result of the London Olympics.”
The improving perceptions of creditworthiness came as Shui On Land Ltd. (272), a Chinese property developer, said in a statement to the Hong Kong stock exchange that it plans to sell more of its U.S. dollar notes due 2015.
Shanghai-based Shui On Land is marketing the bonds to yield about 8.75 percent, a person familiar with the matter said today. Deutsche Bank AG, Standard Chartered Plc and UBS AG are managing the sale, the person said, asking not to be identified because the details are private.
Shui On Land, controlled by Hong Kong billionaire Vincent Lo, issued $475 million of the 9.75 percent notes in February, according to data compiled by Bloomberg.
State Bank of India and China Fishery Group Ltd. led U.S. dollar bond sales totaling $2.4 billion last week, according to data compiled by Bloomberg. Sales in July total $7.1 billion, the data show.
Yields on corporate dollar bonds in Asia have fallen 26 basis points to 5.03 percent this month, according to JPMorgan Chase & Co. indexes. The yield reached a 2012 low of 4.98 percent on July 20, after touching as high as 6.24 percent on Jan. 10.
The Markit iTraxx Australia index fell 4 basis points to 167 as of 10:46 a.m. in Sydney, National Australia Bank Ltd. prices show. The measure is on track for its lowest close since May 8, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. The Markit iTraxx Japan index fell 6 basis points to 179 as of 9:20 a.m. in Tokyo, Deutsche Bank prices show.
Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.
The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point.