Borrowers in Asia refrained from marketing U.S. dollar-denominated bonds today as credit risk jumped the most in seven weeks amid rising tensions in Ukraine.
Credit default risk in Asia outside Japan rose by 8.5 basis points this week to 134.5 basis points, the biggest advance since the gain during the five business days through Jan. 24, according to traders and CMA. Offerings in all of the Asia-Pacific region this week fell by 27 percent compared with the previous five business days, data compiled by Bloomberg show.
Yield premiums on dollar bonds in the region rose by almost 4 basis points yesterday, the biggest increase since March 4, as Secretary of State John Kerry warned the U.S. and Europe could take “very serious” steps should there be no sign of resolution between Ukraine and Russia. The JPMorgan Chase & Co. index closed at 268.3 basis points more than Treasuries yesterday ahead of the March 16 vote in the Black Sea region of Crimea on whether to leave Ukraine and rejoin Russia. China’s industrial output, investment and retail-sales growth slowed more than analysts estimated in January and February.
“Today is just not the day for issuance. Yesterday, weak China data turned the markets, and some companies reported weak results,” said Raymond Chia, the Singapore-based head of credit research at Schroder Investment Management Ltd. “This exacerbated overnight with the ongoing concerns in Ukraine, where we saw equity markets sell off and the S&P pretty much losing all the year-to-date gains.”
The Standard & Poor’s 500 Index (SPX) sank 1.2 percent to 1,846.34, closing at the lowest level since March 3. It’s down 0.1 percent in 2014 after surging 30 percent last year.
Bank of America Corp., UBS AG, JPMorgan and Nomura Holdings Inc. lowered their forecasts for China’s economic expansion this year after reports yesterday showed factory output rose in January and February from a year earlier by the least since the global financial crisis, while retail sales grew at the slowest rate for the period since 2004.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan gained 4 basis points to 134.5 basis points as of 9:00 a.m. in Hong Kong, Westpac Banking Corp. prices show. The gauge is on track for the highest close since March 3, according to CMA.
The Markit iTraxx Australia index rose 3.5 basis points to 106.5 basis points as of 11:37 a.m. in Sydney, according to Australia & New Zealand Banking Group Ltd. The index is poised to end the week up 5.5 basis points, according to data provider CMA. That would be the sharpest increase in seven weeks and its highest close since Feb. 5.
The Markit iTraxx Japan gauge advanced 3 basis points to 81.8 basis points as of 9:34 a.m. in Tokyo, Citigroup Inc. prices show. The measure is on track for its highest close since Feb. 14 and set for a 5.8 basis points weekly jump, the most since the five business days ended Jan. 24, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
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.
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