Asia Dollar Bond Sales Halt as Credit Risk Rises to 5-Month High

Companies in Asia refrained from marketing U.S. dollar-denominated bonds as the cost of insuring debt in the region outside Japan against non-payment rose to the highest in five months.

The Markit iTraxx Asia index of credit-default swaps climbed 5 basis points to 157 basis points, on track for its highest close since Sept. 4, according to Australia & New Zealand Banking Group Ltd. prices and data provider CMA. Hyundai Capital America, a unit of South Korea’s Hyundai Motor Co., sold $1.5 billion of notes in a two-part sale yesterday, ending a three-day drought which was the longest spell without any offerings since the week ended Jan. 3, Bloomberg data show.

Concern about China’s slowing economy has collided with unrest in emerging markets from Thailand to the Ukraine this year. U.S. stimulus cuts along with data yesterday showing factory activity in the world’s biggest economy expanded in January at the weakest pace in eight months have also weighed on sentiment. Dollar bond spreads in the region were at 294.5 basis points more than Treasuries on Jan. 30, a six-week high, according to HSBC Holdings Plc indexes.

“I’d be surprised if we saw much issuance out of Asia this week,” said Mark Reade, a Hong Kong-based desk analyst at Mizuho Securities Asia Ltd. “The general market tone is weak with last night’s U.S. data impacting risk appetite and investors still on edge about emerging markets.”

U.S. Manufacturing

Manufacturing in the U.S. slowed more than estimated as colder-than-usual winter weather chilled demand and production. The Institute for Supply Management’s factory index dropped to 51.3 from 56.5 the month prior, lower than the most pessimistic forecast in a Bloomberg survey of economists. Readings above 50 indicate expansion.

The U.S. data came after a Chinese manufacturing gauge released Feb. 1 in Beijing fell to a six-month low amid slowing production and orders in Asia’s largest economy.

Markets in mainland China, Taiwan and Vietnam remain closed for holidays today while Hong Kong and Malaysia resume after a two-day break.

Federal policy makers said on Jan. 29 the U.S. central bank will trim its monthly bond purchases by a further $10 billion to $65 billion, cutting the pace of stimulus for a second straight meeting.

Hyundai Capital America issued $600 million of 2.55 percent notes due 2019 on Feb. 3 and $900 million of 1.45 percent bonds which mature in 2017, according to data compiled by Bloomberg.

Australia Risk

The Markit iTraxx Australia index increased 4 basis points to 110 basis points as of 11:14 a.m. in Sydney, ANZ prices show. The benchmark is poised for its highest close since Oct. 16 and biggest one-day advance since Sept. 30, CMA prices show.

The Markit iTraxx Japan index gained 3.5 basis points to 87 as of 9:06 a.m. in Tokyo, according to Citigroup Inc. prices. The benchmark is on track for its highest close and biggest one-day increase since Jan. 27, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

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: Tanya Angerer in Singapore at tangerer@bloomberg.net

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

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