UBS Says Asia Bond Sales to Rebound After Stalling Near Record

UBS AG (UBSN) expects Asian issuers to return to the bond market in February after the quietest week this year left dollar-denominated debt offerings short of a monthly record.

Sales in February by borrowers from Asia outside Japan will exceed the amount slated to mature or be called, according to Edwin Chan, head of Asian credit research at the Swiss lender. The region’s companies and sovereigns raised $22.8 billion in the U.S. currency this month, 3 percent less than last January, the busiest month on record, data compiled by Bloomberg show.

Offerings slowed amid a sell-off in emerging-market stocks and currencies in the lead-up to the Federal Reserve announcing a $10 billion reduction in monthly bond purchases yesterday. Concern that growth in China, Asia’s biggest economy, is slowing also weighed on sentiment, as a private survey today showed that manufacturing contracted for the first time in six months in January. The country breaks for a week-long national holiday from tomorrow.

“There are issuers who have been waiting in the wings to take advantage of the window to issue after Chinese New Year and before the earnings season gets too intense,” said Chan, speaking by phone from Hong Kong. “If there’s news coming out over the holiday about emerging markets or China, the market will be extra sensitive to that, but it’s fair to say that stabilization came quite quickly this time around.”

Fed, PMI

The Federal Open Market Committee reduced debt purchases to $65 billion a month, citing labor-market indicators that “were mixed but on balance showed further improvement” and economic growth that has “picked up in recent quarters.” The U.S. economy expanded 4.1 percent in the three months through September, the most since 2011.

A Chinese Purchasing Managers’ Index fell to 49.5 from 50.5 in December, HSBC Holdings Plc and Markit Economics said in a statement today. The reading compared with the median 49.6 estimate in a Bloomberg News survey of 14 economists. A number below 50 indicates contraction.

The cost of insuring Asian corporate and sovereign bonds from default is poised to rise the most since June this month, according to traders of credit-default swaps.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan climbed 5 basis points to 147.5 basis points as of 8:30 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. The gauge is set for an 18.3 basis-point monthly jump, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Australia Risk

The Markit iTraxx Australia index increased 3.8 basis points to 105.8 basis points as of 11:32 a.m. in Sydney, according to Citigroup Inc. The index is on course to end the month up 7.6 basis points, CMA prices show.

The Markit iTraxx Japan index rose 3.5 basis points to 85.5 basis points as of 9:34 a.m. in Tokyo, Citigroup prices show.

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

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