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China Aluminum Markets Dollar Perpetuals as Weekly Sales Surge

China Aluminum International Engineering Corp. (2068) is marketing U.S. dollar-denominated bonds as note sales in the currency in Asia almost quadruple this week.

The unit of state-owned Aluminum Corp. of China is selling perpetual securities at a yield of about 7.25 percent, a person familiar with the matter said. Offerings in the region outside Japan jumped to $3.1 billion this week from $800 million in the five days to Feb. 14, according to Bloomberg-compiled data.

Borrowers are returning to the dollar market as yields fell to 4.4 percent on Feb. 19, the least since Nov. 1, HSBC Holdings Plc indexes show. China Resources Land Ltd. (1109), a developer in Shanghai and Beijing, sold $1.1 billion of debt yesterday in the biggest deal since Feb. 3, data compiled by Bloomberg show. A larger-than-forecast climb in a measure of U.S. manufacturing, released Feb. 20, tempered concern about global growth.

“Looking at the interbank rates, liquidity in China seems quite flush right now and this week’s loan data also helps sentiment,” said Krishna Hegde, Barclays Plc’s Singapore-based head of Asia credit research. “Furthermore, investors have some cash to deploy after a drop in issuance in the past few weeks and an improved tone of fund flows.”

The seven-day repurchase rate, a gauge of funding availability in the banking system in China, fell 10 basis points today and 81 basis points this week to 3.63 percent in Shanghai, according to a fixing by the National Interbank Funding Center. That’s the lowest level since Oct. 22.

Fund Demand

China Resources Land sold $400 million of 4.375 percent five-year debentures and $700 million of 10-year 6 percent notes yesterday. Fund managers, insurers and the public sector took 73 percent of the five-year and 98 percent of the 10-year bonds, the person familiar said, asking not to be identified because the details are private.

The last company in Asia outside Japan to sell as many notes was Hyundai Capital America, which raised $1.5 billion on Feb. 3 in a two-part offering. Its $900 million of 1.45 percent notes are yielding 1.463 percent, Bloomberg-compiled prices show.

The Markit Economics preliminary index of U.S. manufacturing increased to 56.7 in February, surpassing economists’ estimates, while Labor Department figures indicated fewer applications for unemployment benefits last week.

Federal Reserve Chair Janet Yellen last week said the economy has strengthened enough to withstand continued cuts to monetary stimulus, adding that only a notable change in the outlook for the economy would prompt the central bank to slow its pace of tapering.

Asia Risk

Bond risk in Asia declined today, according to credit-default swap traders.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 3 basis points to 136 basis points as of 8:37 a.m. in Singapore, Australia & New Zealand Banking Group Ltd. prices show. The gauge is set to decline 1.2 basis points this week in what would be its third consecutive week of declines, according to data provider CMA.

The Markit iTraxx Japan index slid 3 basis points to 75.8 as of 9:44 a.m. in Tokyo, Citigroup Inc. prices show. The measure is poised for its lowest close since Jan. 13 and a 6.9 basis-point fall this week after dropping 0.4 last week, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Australia index was little changed at 101.5 basis points as of 11:39 a.m. in Sydney, according to Westpac Banking Corp. The benchmark, which has ranged from 96.7 basis points to 109.6 basis points this year, is set to increase this week after declining the previous three, CMA prices show.

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.

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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