Goldman Sachs Sees Muted Taper Impact on Asian Debt as Fed Meets

Goldman Sachs Group Inc. (GS) says U.S. cuts to unprecedented stimulus will have a limited effect on the performance of Asian bonds this year, as the Federal Reserve finishes its first policy meeting of 2014.

The central bank will probably trim monthly bond purchases by an additional $10 billion at each Federal Open Market Committee meeting through September, a Bloomberg News survey forecasts, after the body announced initial cuts last month.

“We see the impact of U.S. tapering being relatively muted and domestic factors to come to the forefront,” analysts led by Hong Kong-based Kenneth Ho wrote in a research report dated yesterday. “We expect domestic issues such as growth trajectory, domestic monetary policy, elections and inflation to matter more.”

The Fed is winding back record stimulus amid falling unemployment and mixed data on economic growth. Output at factories, mines and utilities climbed in the fourth quarter, while orders for long-lasting equipment slumped by the most in five months in December. Domestic matters such as Chinese credit concerns and Thai political uncertainty are having the greatest effect on the performance of Asian debt, the e-mailed note said.

Some 78 percent of fixed-rate bonds sold by borrowers from China and Hong Kong this year traded below their issue price as of Jan. 27, data compiled by Bloomberg show, amid concerns that slowing growth and shadow banking will increase credit risk. A troubled high-yield trust averted default this week after reaching a pact for a potential investment.

Thai Turmoil

Investors have pulled $1.4 billion from Thai debt since Oct. 31, according to data from the Thai Bond Market Association, as the nation grapples with protests aimed at toppling Prime Minister Yingluck Shinawatra.

“It is important to keep the focus on good quality corporates, and to concentrate on names that can weather any macro noise,” Goldman analysts wrote.

Asian credit risk rose to its highest level in more than three months this week, according to data provider CMA. The Markit iTraxx Asia index, which measures the cost of insuring Asian corporate and sovereign bonds from default, dropped 4 basis points to 141 basis points as of 8:57 a.m. in Singapore today, Royal Bank of Scotland Group Plc prices show.

The Markit iTraxx Australia index decreased 4 basis points to 101.5 basis points as of 11:35 a.m. in Sydney, Westpac Banking Corp. prices shows. The gauge is on track for its lowest close since Jan. 20, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Japan index fell 3 to 79.3 as of 10:10 a.m. in Tokyo, Citigroup Inc. prices show. The measure is set for its lowest close since Jan. 17, according to CMA data.

Credit-default swap indexes are benchmarks for protecting 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: Rachel Evans in Hong Kong at revans43@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.