Dollar Bond Spreads in Asia at 3-Week High Amid Fed Taper Talk

The extra yield investors demand to hold U.S. dollar-denominated corporate bonds from Asia outside of Japan rose to a three-week high amid speculation the Federal Reserve may cut the pace of asset purchases in coming meetings.

The premium over Treasuries climbed six basis points last week to 284 basis points, the highest since May 3, according to Bank of America Merrill Lynch indexes. Asian borrowers raised $2.1 billion selling notes in the U.S. currency in the five days ended May 24, the least in seven weeks, data compiled by Bloomberg show.

Regional borrowing costs have tracked Treasury yields higher as Fed Chairman Ben S. Bernanke said last week that policy makers may cut the pace of bond purchases at the next few meetings if they see indications of sustained growth. Asian dollar bonds dropped 0.6 percent in May, which, if sustained, would be the biggest monthly loss since November 2011, the Merrill Lynch index data show.

“Fed officials are trying to leave themselves some options, but the market seems wary that they will slow the pace of their purchases,” said Brayan Lai, a Singapore-based analyst in emerging-market credit trading at Jefferies Group LLC. “We may see a moderation in buying or new issues with larger premiums in credit markets.”

Companies in the region have sold a record $81.3 billion of notes in 2013, the most for any first five months of the year, according to data compiled by Bloomberg since 1999.

Zoomlion Decline

Notes from Zoomlion Heavy Industry Science & Technology Co. declined after the company halted shares in Shenzhen and Hong Kong following a report on Sina.com saying it falsified sales. The construction equipment maker’s $600 million of 6.125 percent bonds due December 2022 fell 2.52 cents on the dollar to 95.02 cents as of 12:54 p.m. in Hong Kong, heading for the biggest one-day decline since Feb. 4, data compiled by Bloomberg show.

Hong Xiaoming, a Zoomlion vice president in charge of the finance department, said in a mobile-phone text message that the company will issue a clarification today.

The cost of insuring corporate and sovereign bonds in the Asia-Pacific region against non-payment rose to the highest levels in a month, according to traders of credit-default swaps.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 2 basis points to 108.5 as of 8:49 a.m. in Hong Kong, Westpac Banking Corp. prices show. The benchmark is also poised for its highest close since April 26, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

Australia Risk

The Markit iTraxx Australia index jumped 5 basis points, the most since March 20, to 109 basis points as of 10:27 a.m. in Sydney, according to National Australia Bank Ltd. prices. The measure is on track for its highest close since April 26, according to data provider CMA.

The Markit iTraxx Japan index increased 3.5 basis points to 88 as of 9:36 a.m. in Tokyo, according to Citigroup Inc. prices. The gauge, which had advanced 11.2 basis points in the last two trading days, is set for its highest close since April 24, 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.

To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net

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