Sales of U.S. dollar-denominated bonds in Asia outside Japan rose to the highest in more than a month this week as borrowing costs hovered close to record lows.
PT Pertamina Persero led offerings since May 13, helping drive total issuance to $7.6 billion, the most since the five-day period ended April 12, data compiled by Bloomberg show. The average yield on Asia corporate dollar bonds touched 3.77 percent last week and was at 3.81 percent yesterday, Bank of America Merrill Lynch indexes show. That compares with a 1.88 percent yield on benchmark 10-year Treasuries.
U.S. currency debt sold by companies in Asia has handed investors a 2 percent return so far this year, versus a 1.2 percent rise for corporate bonds in the U.S., as growth in the region outstrips developed economies and investors bet the Federal Reserve will keep monthly asset purchases at $85 billion. Reserve Board Governor Sarah Bloom Raskin said yesterday the U.S. central bank “will continue to conduct monetary policy so as to promote a stronger economic recovery in the context of price stability.”
“Conditions for elevated issuance remain ideal,” said Shankar Narayanaswamy, the Singapore-based global head of credit strategy at Standard Chartered Plc. “Yields for issuers are near all-time lows and there are strong inflows supported by abundant liquidity in the system.”
Pertamina, Indonesia’s state-owned oil company, sold $1.625 billion of 10-year bonds and the same amount of 30-year securities this week, data compiled by Bloomberg show. The extra yield investors demand to hold the company’s May 2023 debt over similar-maturity Treasuries has dropped to 235 basis points from an issue spread of 243, the data show.
Asia’s dollar bonds gained 1 percent since March 31, heading for a seventh-straight quarter of gains, the longest winning streak since 2010, Bank of America Merrill Lynch figures show.
The cost of insuring corporate bonds against non-payment was little changed in Asia today, according to credit-default swap traders.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was at 102 basis points as of 8:27 a.m. in Singapore, Westpac Banking Corp. prices show. The benchmark is on course for its first weekly increase in four, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.
The Markit iTraxx Japan index increased 1.5 basis points to 78.5 as of 9:17 a.m. in Tokyo, Citigroup Inc. prices show. The gauge, which touched an almost five-year low on May 13, is set for its first weekly increase since the period ended April 19, according to CMA.
The Markit iTraxx Australia index advanced 1 basis point to 102.5 as of 10:05 a.m. in Sydney, according to National Australia Bank Ltd. prices. The measure, which has ranged from 96.1 basis points to 127.5 this year, is headed for its first increase in three days, CMA data show.
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.