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Asia Bond Risk Rises Most in Two Weeks on Fiscal Cliff Concern

Asia bond risk is set for the biggest weekly increase since the end of October as investors grow increasingly concerned the U.S. may go over the so-called fiscal cliff. Far East Consortium International Ltd. is marketing dollar-denominated debt.

The cost of insuring sovereign and corporate notes in Asia from default is set to rise 4.3 basis points this week, the most since the five-day period ending Oct. 26, according to credit-default swaps traders and data provider CMA. The extra yield investors demand to buy Asian corporate bonds denominated in dollars rose the most in a day since July yesterday.

Investors’ attention is turning from U.S. President Barack Obama’s re-election to $1.2 trillion of automatic spending cuts in 2013 if Congress can’t agree to reduce the country’s deficit. The world’s biggest economy may suffer a recession should that take place, according to the Congressional Budget Office. Companies in the Asia-Pacific region increased issuance to a three-week high as they tried to finish fundraising for the year.

“The fiscal cliff is a manmade disaster,” said Brayan Lai, a desk analyst in emerging-market credit trading at Jefferies Group Inc. in Singapore. “With that uncertainty in mind no one’s going to come in and aggressively buy despite the approaching year-end rush from issuers.”

Far East Consortium, the Hong Kong-listed property developer that also has hospitality and car park operations, plans to sell $200 million of five-year bonds at about 5.5 percent, according to a person familiar with the matter. Asia-Pacific dollar debt offerings rose to $4 billion this week, the most since the period ended Oct. 19, data compiled by Bloomberg show.

Year-End Issuance

Hutchison Whampoa Ltd., the Hong Kong conglomerate controlled by Li Ka-shing, Asia’s wealthiest man, led offerings this week, even as bondholders demanded more to purchase dollar debt of companies in the region.

The yield premium that Asian issuers pay to sell dollar bonds rose nine basis points to 267 basis points yesterday, the biggest daily increase since July 23, according to JPMorgan Chase & Co. indexes. The gauge is poised to rise for the fourth straight week, the indexes show.

“Some back-up in spreads wouldn’t be surprising,” said Glenn Hodgeman, global head of credit trading at Westpac Banking Corp. in Sydney. “So many people were focused solely on the U.S. presidential elections that fiscal cliff concerns were not really at the front of the mind. That has now changed.”

Risk Mounts

China Aoyuan Property Group, which develops property mainly in Guangdong province and Shenyang city, may market an offering of five-year dollar bonds in the mid to high 14 percent area, a person familiar with the matter said yesterday. It’s the third real-estate company from the nation to mull a debt issue in the U.S. currency this week, after China SCE Property Holdings Ltd. and China Overseas Land & Investment Ltd. sold notes, data compiled by Bloomberg show.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose three basis points to 121 as of 8:32 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. .

The Markit iTraxx Australia index gained six-and-a-half basis points to 147 basis points as of 11:24 a.m. in Sydney, according to Westpac Banking Corp. The measure is set for its highest close since Oct. 29, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. It is poised to rise 9.8 basis points this week, the most since the five-day period ending Sept. 21, CMA data show.

The Markit iTraxx Japan index advanced three basis points to 202 as of 9:24 a.m. in Tokyo, Citigroup Inc. prices show. The measure ended last week at 200.6, CMA prices show.

The swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. An increase suggest declining perceptions of creditworthiness. 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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