Asian Borrowers Break From Marketing U.S. Debt as Year-End Nears
Borrowers in Asia outside of Japan took a break from marketing new dollar-denominated bonds today ahead of year-end holidays, even as the Federal Reserve’s commitment to low rates burnished the outlook for higher yielding assets in the region. Debt risk was little changed.
Zoomlion Heavy Industry Science & Technology Co. started marketing 10-year securities yesterday at a yield of about 6.25 percent, a person familiar with the matter said. Earlier in the week, Vingroup JSC was offering five-year debt to yield 12 percent to 12.5 percent, according to another person who also asked not to be identified because the terms aren’t set.
The Fed announced further monetary stimulus yesterday, saying it will buy $45 billion of Treasury securities a month starting in January to spur the economy. Rates will stay low “at least as long” as unemployment remains above 6.5 percent and if inflation is projected to be no more than 2.5 percent, the Federal Open Market Committee said in a statement.
“I expect U.S. Treasury yields will stay low through the first half and as a consequence, credit spreads will continue to grind tighter as investors globally reach out for yield,” said Mark Reade, a Hong Kong-based credit desk analyst at Credit Agricole SA. “Asia will outperform other markets as a higher yielding market.”
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 112 basis points as of 8:48 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. The gauge, which has ranged from 109.2 basis points to 175.3 basis points this half, is down 1.8 basis points this week, according to RBS and data provider CMA.
The Markit iTraxx Japan index decreased 2 basis points to 169 as of 9:23 a.m. in Tokyo, Citigroup Inc. prices show. The measure is on track for its lowest close since Dec. 5, according to CMA.
The Markit iTraxx Australia index fell 0.5 to 123.5 as of 11:21 a.m. in Sydney, according to Westpac Banking Corp. The index closed at 123.5 yesterday, the lowest since August 2011, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
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.
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