Companies in Asia are facing the highest costs in nearly a year to borrow in the dollar-denominated bond market after a stronger-than-forecast U.S. job report triggered a slump in Treasuries.
Average yields for corporates in the region rose 11 basis points to 5.01 percent on July 5, near the 12-month high of 5.02 percent marked on June 26, Bank of America Merrill Lynch Indexes show. Ten-year U.S. government bond yields advanced 24 basis points to 2.74 percent on July 5, the most since August 2011, after data showed U.S. employers hired more workers than economists expected in June, adding to the case for the Federal Reserve to reduce economic stimulus.
“The market has been shut for a few weeks for high-yield issuers in Asia and this isn’t going to help things at all,” Sandra Chow, a senior analyst in Singapore at CreditSights Inc. said. “There aren’t that many companies with pressing needs and a lot of them have good relationship with lenders, so they still have access to bank funding.”
Payroll rose by 195,000 workers last month, exceeding the 165,000 median forecast of economists in a Bloomberg survey. Economists at Goldman Sachs Group Inc. and JPMorgan Chase & Co. said after the figures the Fed will begin tapering sooner than they had projected. Dollar bond sales in Asia outside Japan plunged 96 percent to $665 million in June, according to data compiled by Bloomberg.
No company in Asia outside Japan is currently marketing bonds in the U.S. currency. Korea Gas Corp. sold a $100 million floating-rate note on June 26, breaking what was the longest drought in offerings this year. The last company to sell dollar bonds in the region before that was China Huaneng Group Corp., which issued $400 million of securities on June 4, data compiled by Bloomberg show.
Companies including Lenovo Group Ltd. and China Properties Group Ltd. have met with investors concerning possible offerings over the past two months.
The cost of insuring bonds against non-payment in Australia and in Asia outside of Japan increased today, according to traders of credit-default swaps.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan climbed 2 basis points to 157 basis points as of 8:36 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The measure is set to rise for the first time in three trading days, according to data provider CMA.
The Markit iTraxx Australia index rose 2 basis points to 135 as of 10:32 a.m. in Sydney, Westpac Banking Corp. prices show. The gauge, which fell 3.1 basis points last week, is on track to close at its highest level since July 4, 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 was little changed at 103.3 basis points as of 9:19 a.m. in Tokyo, according to Citigroup Inc. The benchmark is on track for its lowest close since July 2 after falling 6.3 basis points last week, 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.