Asia’s dollar-denominated bond market is expected to pick up next week as some of the region’s biggest sovereigns ready sales and yield premiums narrow to the least in more than two and a half years.
Spreads on U.S. currency notes fell to 298 basis points on Jan. 2, the least since May 2011, while 10-year Treasury yields touched 3.05 percent, the highest since July that same year, JPMorgan Chase & Co. indexes and Bloomberg data show. Sales in Asia excluding Japan slumped to $2.96 billion in December, the least in six months.
Indonesia plans to sell global dollar securities in 2014, Robert Pakpahan, a director general at the finance ministry’s debt management office, said in late October. Southeast Asia’s largest economy has sold dollar bonds in January in three out of the last six years. The Philippines, which has sold dollar bonds in January for seven out of the last 10 years, met with investors last month.
“It should start getting busy next week,” said Edwin Chan, the Hong Kong-based head of Asian credit research at UBS AG. “It’ll be full steam ahead after tapering plans came through over the holidays. Investors will be keen to execute their new strategies and put money to work.”
Indian Railway Finance Corp., the funding unit of the state-owned rail network, hired banks on Jan. 1 to help arrange a $600 million sale, a person familiar with the matter said. Benchmark Treasury yields climbed the most last year since 2009 as the economy improved enough for the Federal Reserve to start reducing its bond purchases, prompting some money managers to bet stimulus will end within 12 months.
The cost of insuring sovereign and corporate bonds in Asia and Australia from non-payment rose today, according to traders of credit-default swaps.
The Markit iTraxx Australia index climbed 2 basis points to 99 basis points as of 11:33 a.m. in Sydney, Westpac Banking Corp. prices show. The gauge is poised for its highest close since Dec. 18 and biggest one-day increase since Dec. 6, CMA data show.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increased 1 basis point to 130.5 as of 8:30 a.m. in Singapore, prices from Australia & New Zealand Banking Group Ltd. show. The benchmark, on track to advance 3.5 basis points this week, is set for its highest close since Dec. 10, after rising 15.8 basis points in 2013, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.
Markets in Japan are closed today for a public holiday. The cost of insuring notes against default in Asia’s second-largest economy dropped 91.5 basis points last year to 67.5 basis points, CMA data show. That was the measure’s biggest yearly decline since 2009. A basis point is 0.01 percentage point.
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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