Asian Corporate Bond Defaults to Stay Low, Moody’s Says

While the level of defaults among Asian issuers of non-investment grade corporate debt is expected to rise in 2013, the rate will remain low, according to Moody’s Investors Service.

The default rate on speculative-grade bonds sold by companies in the Asia-Pacific region outside of Japan will be about 2 percent compared with 0.9 percent in 2012, Moody’s credit officer Clara Lau said in a report today. The ranking company made the prediction for securities rated Ba1 or below, also known as high-yield or junk bonds, based on its credit transition model.

Average yield premiums on Asian speculative-grade bonds denominated in U.S. dollars have dropped to 371 basis points more than Treasuries as of yesterday from a 2012 peak of 513, according to JPMorgan Chase & Co. indexes. Global credit spreads have rallied this year as investor concern over the U.S. budget abated in the wake of a Congressional deal and central banks around the world continued to pump stimulus into economies in a bid to jump start growth.

“The expectation of a continued low default rate for 2013 strongly depends on continued accommodative monetary policies” as many Asian speculative-grade issuers rely on short-term funding, or access to the capital markets to support operations and refinancing, said Lau, who is based in Hong Kong. “The expected rise will primarily be driven by the overall credit deterioration in Moody’s-rated portfolio in 2012.”

The average rating for high-yield Asian corporate debt rated by Moody’s fell to B1/B2 at the end of 2012 from Ba3/B1 at the start of the year, the company said. There were a large number of negative actions, primarily for issuers from China, it said.

The estimates by Moody’s are based on an assumption that high-yield spreads will remain mostly stable and the average unemployment rate in the Asia-Pacific region will stay at about 4.5 percent, Lau said.

To contact the reporter on this story: Benjamin Purvis in Sydney at bpurvis@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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