Asia Dollar Bond Sales Pause Amid China Economic Growth Concerns
Asian borrowers refrained from marketing U.S. dollar-denominated bonds today amid concern a slowdown in China will curb the global recovery. Debt risk rose.
Offerings in Asia outside of Japan have stalled this week after a record $8.3 billion was sold in the previous five business days, according to data compiled by Bloomberg. The cost of insuring corporate and sovereign bonds in the region against non-payment is set for its highest close since April 10, according to credit-default swap traders.
Gross domestic product in China rose 7.7 percent in the first quarter, less than economists had forecast and its longest streak of expansion below 8 percent in at least 20 years, data released yesterday in Beijing showed. The MSCI Asia Pacific Index (MXAP) of stocks slid for a second day after the worst plunge in gold futures since 1980, weaker U.S. data and a series of deadly explosions near the Boston Marathon’s finish line.
“I doubt we’ll see any primary U.S. dollar deals today, but that’s not down to the Boston bombings,” said Mark Reade, a Hong Kong-based credit desk analyst at Credit Agricole CIB. “While tragic, the bombings are unlikely to have a major market impact, a bigger factor overnight was the series of weak economic data out of China and the U.S.”
Qu Hongbin, chief China economist at HSBC Holdings Plc, cut his forecast for China’s growth from 8.6 percent to 8.2 percent this year. The slower expansion means less of a boost for other Asian economies, Frederic Neumann, co-head of Asian economic research at the lender, wrote in an e-mailed note today. Relatively high dependence on Chinese demand leaves Korea, Singapore and Australia particularly prone to “downside risks,” he wrote.
Borrowers planning note sales in the U.S. currency include Minmetals Land Ltd. (230), a Chinese developer, and San Miguel Corp. (SMC), the largest Philippine food and drinks company, according to people familiar with the matter, who asked not to be identified because the details are private.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan advanced 2 basis points to 117 basis points as of 8:18 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show.
The Markit iTraxx Japan index increased 3.5 basis points to 93.5 as of 9:48 a.m. in Tokyo, according to Deutsche Bank AG prices. The benchmark is set for its biggest one-day rise since March 27, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.
The Markit iTraxx Australia index rose 2 basis points to 115.5 basis points as of 10:11 a.m. in Sydney, according to Westpac Banking Corp. (WBC) prices. The measure is poised to close at its highest level since April 8, CMA data 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.
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