Sales of Basel III-compliant bonds in the Asia-Pacific region may reach $10 billion this year, according to Nomura Holdings Inc., Japan’s largest brokerage.
The bulk of that will likely be in Tier 2 securities, William Mak, a Hong Kong-based credit analyst at the lender, said by phone. Mizuho Financial Group Inc. issued $1.5 billion of 10-year Tier 2 dollar-denominated notes this week, in the first Basel III-compliant issuance from Japan, according to data compiled by Bloomberg. Standard Chartered Plc (STAN) is marketing 30-year subordinated debt at 230 basis points to 235 basis points more than Treasuries, a person familiar said.
Asia’s banks are bolstering their balance sheets by replacing old-style instruments no longer in line with guidelines set by the Basel Committee on Banking Supervision. The global watchdog released more stringent capital rules after the financial crisis exposed inadequate buffers against losses. United Overseas Bank Ltd. sold Southeast Asia’s first dollar Basel III-compliant securities last week, according to a Moody’s Investors Service report dated March 19.
“The Asian bid has been the most consistent when it comes to bank capital deals,” said Malcolm Mui, Nomura’s Hong Kong-based head of investment grade debt syndicate for Asia ex Japan.
Yield premiums on dollar bonds for financial institutions in Asia slid to 224.7 basis points yesterday, the lowest since before the collapse of Lehman Brothers Holdings Inc. in September 2008, according to a JPMorgan Chase & Co. index.
Tier 2 instruments, which absorb losses after Tier 1 assets such as common equity and retained earnings, mustn’t be guaranteed by the issuer and must be subordinate to depositors and general creditors, according to Basel capital rules revised June 2011.
Bank of America Corp., Goldman Sachs Group Inc., JPMorgan, RBC Capital Markets LLC and Standard Chartered are managing Standard Chartered’s sale, which may price as early as today, the person familiar with the matter said, asking not to be identified because the terms aren’t set.
The cost of insuring corporate and sovereign bonds from default in the Asia-Pacific region fell today, according to traders of credit-default swaps.
The Markit iTraxx Asia Series 21 index of 40 investment-grade borrowers outside Japan dropped 1 basis point to 139.5 basis points as of 8:31 a.m. in Singapore, according to Westpac Banking Corp. prices.
Series 21 began trading yesterday. Series 20 ended last week at 134.5bps, according to prices from data provider CMA. The gauge is set to fall for a second day.
The Markit iTraxx Australia Series 21 index fell 0.5 of a basis point to 103.3 basis points as of 11:15 a.m. in Sydney, according to Westpac Banking Corp. Series 20 closed last week at 106.7, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
Markets in Japan are closed for a public holiday.
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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