Bond risk in Asia slid to the lowest in almost 14 months after the Federal Reserve announced asset purchases to boost growth. CapitaLand Ltd. and Nan Fung Group started marketing sales of dollar-denominated bonds.
The Markit iTraxx Asia index fell 10 basis points to 115.5 basis points as of 9:23 a.m. in Hong Kong, poised for its lowest close since July 26 last year, according to Royal Bank of Scotland Group Plc and CMA prices. CapitaLand is marketing 10-year bonds to yield about 250 basis points more than similar maturity Treasuries, while Nan Fung is offering 10-year debt at a spread of about 300 basis points to 310 basis points.
The Fed will buy $40 billion of mortgage debt a month to help tackle unemployment that has remained above 8 percent since February 2009, Chairman Ben S. Bernanke said yesterday. The central bank will probably hold the federal-funds rate near zero until at least mid-2015, according to a statement yesterday. Mario Draghi, president of the European Central Bank, unveiled his own bond-purchase program last week to help contain the region’s sovereign debt crisis.
“Bernanke and Draghi have both delivered as expected,” said Owen Gallimore, the Singapore-based head of Asia credit strategy at Australia & New Zealand Banking Group Ltd. “I see sentiment staying strong, but the Chinese slowdown, negative European economic data and, locally, a gangbusters new-issue market for dollar bonds should now cap significant further spread tightening.”
China has “ample” room to use fiscal and monetary means to boost growth, Premier Wen Jiabao said this week, signaling that the government may step in to prevent growth slipping below a 7.5 percent target. Europe’s economy contracted in the second quarter, falling 0.2 percent.
The average premium that investors demand to buy Asian dollar bonds rather than government debt tumbled 25 basis points this month to 350 basis points, according to Bank of America Merrill Lynch indexes. Malayan Banking Bhd. and Kasikornbank Pcl helped push weekly issuance in the Asia-Pacific region to $8.8 billion, the most in nine weeks, according to data compiled by Bloomberg. That brings total sales to $17.2 billion since Aug. 31, the data show. New issuance may reach $100 billion this year, ANZ’s Gallimore said.
The Markit iTraxx Japan index decreased 8.5 basis points to 175.5 basis points as of 9:38 a.m. in Tokyo, Citigroup Inc. prices show. The benchmark is on course for its lowest close since July 10, 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 declined 8 to 138 as of 10:24 a.m. in Sydney, Westpac Banking Corp. prices show. The gauge is set for its lowest close since March 21, according to data provider CMA.
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.