Asia’s Dollar Bonds Beat Local Debt Amid Emerging Market Selloff

Dollar-denominated bonds sold by Asian issuers are outperforming local-currency offerings by the most since at least 2000 after a selloff in emerging markets. New World Development Co. is planning a sale of dollar debt.

U.S. currency securities from the region returned 1.3 percent this year compared with 0.3 percent for local-currency notes, HSBC Holdings Plc indexes show. The gap between the indexes of dollar and local-currency bonds widened to the most since the domestic gauge started. Hong Kong developer New World meets investors from today to discuss a dollar offering, a person familiar with the matter said, asking not to be identified because the terms aren’t set.

Investors in developing economies pulled 10 times more money from local-currency bond funds than from those that buy securities in hard currencies, such as dollars, in the week ended Feb. 12, data provider EPFR Global wrote in an e-mailed note dated Feb. 14. South Korea’s won has lost 1.1 percent this year, while the Malaysian ringgit and Philippine peso weakened 0.6 percent and 0.3 percent respectively, amid signs of weaker growth in China and further reductions in U.S. stimulus.

“People have a preference for putting money in hard currency assets rather than in local currency,” said Kaushik Rudra, the Singapore-based global head of credit research at Standard Chartered Plc. “Investors are clearly not going to wash their hands of that space. It’s just that over the near term, it doesn’t seem like there’s a lot of cash coming into emerging-market local currency.”

Dollar Dominance

Domestic bonds in eight out of nine markets where HSBC tracks local- and U.S.-currency returns have gained less this year than dollar notes sold by the nations’ issuers, the bank’s indexes show.

A Chinese manufacturing gauge signaled the first contraction in six months in January while the U.S. Federal Reserve announced further cuts to monthly bond purchases. Investors are also concerned about current-account deficits in emerging markets, Standard Chartered’s Rudra said.

The cost of insuring Asia-Pacific corporate and sovereign bonds from default declined, according to traders of credit-default swaps.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan slid 1 basis point to 136 basis points as of 8:12 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. The gauge is set for its lowest close since Jan. 6, 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 also dropped 1 basis point to 100.5 basis points as of 10:16 a.m. in Sydney, according to National Australia Bank Ltd. The index is falling after three consecutive weeks of declines, according to CMA.

The Markit iTraxx Japan index retreated 1 basis point to 79.8 as of 8:40 a.m. in Tokyo, Citigroup Inc. prices show. The measure is on track for its lowest close since Feb. 12, CMA 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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