Biggest Yield Premium Drop Since 2009 May Spur Sales, ANZ Says

Yield premiums on U.S. dollar-denominated bonds in Asia that are headed for their biggest annual decline since 2009 should help spur issuance in 2013 amid signs of an economic rebound in China, according to Australia & New Zealand Banking Group Ltd.

The extra spread investors demand to own the notes has fallen 117 basis points this year and touched a record low of 247.2 basis points on Oct. 19, HSBC Holdings Plc indexes show. Yield premiums rose 111 basis points last year and fell 11 and 425 in 2010 and 2009 respectively, HSBC data show.

China’s economy looks to be showing signs of a rebound from a seven-quarter slowdown. Retail sales rose 14.9 percent from a year earlier in November and industrial production grew 10.1 percent, the biggest gains since March, official data show. The extra yield investors demand to own Chinese dollar bonds has narrowed every month since March and fell to 365 basis points Dec. 19, the least since January 2011, according to JPMorgan Chase & Co. indexes.

“Plenty of issuers will start coming through in mid-January,” said Owen Gallimore, a fixed-income analyst at ANZ in Singapore. “The fiscal cliff is a lot of noise in the short-term but you can’t lose sight of the fact that the outlook for next year is quite strong with the pickup in China that we’re seeing.”

Sales of dollar bonds in Asia outside of Japan have dwindled in December as the U.S. faces more than $600 billion in tax-and-spending changes which may cause a recession in 2013 if left in place. House Republican leaders have canceled a planned vote that would permit higher taxes, throwing U.S. budget negotiations deeper into turmoil.

Record Sales

Dollar bond offerings in the region since Dec. 31 however are at a record $121 billion, according to data compiled by Bloomberg. Offerings totaled $62.8 billion for the whole of 2011, the data show.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 108 basis points as of 8:42 a.m. in Hong Kong, Credit Agricole SA prices show. The index advanced 1.1 basis points yesterday, rebounding from a 19-month of low of 107 on Dec. 19, and is set to fall for a seventh consecutive month, according to data provider CMA.

The Markit iTraxx Australia index was also little changed at 120 basis points as of 11:42 a.m in Sydney, Credit Agricole prices show.

Japanese Bonds

The cost of insuring corporate bonds in Japan from non-payment fell. The Markit iTraxx Japan index dropped 1.5 basis points to 158.5 as of 10:20 a.m. in Tokyo, Deutsche Bank AG prices show.

The index, which has ranged from 136.2 basis points to 229.5 basis points this year, closed at 157.4 basis points on Dec. 19, its least since April, 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.

— With assistance by Henry Sanderson

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