Asian Dollar Debt Sales Surge as Indonesia Markets 10-Year Bonds

Issuers from Indonesia to Hong Kong and South Korea are marketing dollar-denominated debt in what’s set to be the busiest day for sales from Asia in almost four weeks. Bond risk was little changed.

Republic of Indonesia is selling 10-year Islamic securities yielding about 3.5 percent, said a person familiar with the deal. China Taiping Insurance Holdings Co. is offering about 260 basis points more than Treasuries on bonds due 2022 while Export-Import Bank of Korea is in the market with three-year notes at a spread of about 115 basis points, separate people said. The last time three Asian borrowers sold dollar debt in a single day was on Oct. 18, data compiled by Bloomberg show.

Investors are turning to Asian investment-grade bonds as they seek to earn extra yield while avoiding riskier assets such as stocks or junk debt, according to Credit Agricole SA. Far East Consortium International Ltd. and Australia’s Bluescope Steel Ltd. scrapped plans for speculative-grade note offerings this week.

“High-grade bonds fare reasonably well in mild risk-off or mild-risk on environments,” said Frances Cheung, a senior strategist at Credit Agricole in Hong Kong. “Overall we will still see some demand for dollar bonds.”

Premiums on U.S.-currency bonds sold by investment-grade issuers in Asia rose to 225 basis points more than Treasuries yesterday, from a 17-month low of 205 on Oct. 19, according to JPMorgan Chase & Co. indexes. Junk-rated spreads climbed 26 basis points to 370 in the same period, the data show.

iTraxx Index

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 125.5 basis points as of 8:20 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. The index has ranged between 175.3 and 112.6 in the second half, according to data provider CMA.

Indonesia, Southeast Asia’s largest economy, sold $1 billion of Shariah-compliant debt due in 2018 at 4 percent last year, data compiled by Bloomberg show. The nation issued $650 million worth of five-year sukuk in April 2009 at 8.8 percent.

The sukuk notes from Indonesia, home to the world’s largest population of Muslims, are rated BBB- by Fitch Ratings and the equivalent Baa3 by Moody’s Investors Service, while Standard & Poor’s rates them at BB+, the top junk level.

Investment-grade debt is rated at least Baa3 by Moody’s or BBB- by S&P. Notes with lower ratings, or none at all, are typically known as junk, high-yield or speculative grade.

Sukuk are Islamic bonds that pay returns to comply with the religion’s ban on interest.

Mazda CDS

The Markit iTraxx Australia index fell half a basis point to 146.5 as of 11:21 a.m. in Sydney, according to Australia & New Zealand Banking Group Ltd. The gauge has dropped 34 basis points this year, set to snap two years of increases, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Japan index slid three basis points to 202 basis points as of 9:22 a.m. in Tokyo, Citigroup Inc. prices show. The index had climbed 18.6 basis points this year as of yesterday’s close after rising 85.5 in 2011, according to CMA.

Contracts insuring the debt of Mazda Corp., the only Japanese automaker that’s been unprofitable for the past four years, fell 53 basis points to 342 as of 9:06 a.m. in Tokyo, according to intraday prices from CMA. The contracts increased for the three days through yesterday, the longest stretch in a month, to close at 395 in New York yesterday.

The swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on debt quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE