Bond risk in the Asia-Pacific region rose as China’s manufacturing weakened further this month, according to a preliminary survey of purchasing managers.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan jumped eight basis points to 134.5 basis points as of 10:53 a.m. in Singapore, Westpac Banking Corp. prices show. The gauge is poised for its largest rise since July 3, according to data provider CMA. China’s Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics fell to 47.7 from 48.2 in June. Readings below 50 indicate contraction.
“This is going to damp market sentiment in the short term”, said Raymond Chia, deputy head of credit research in Singapore at Schroder Investment Management Ltd, referring to the weaker PMI data. The Asian bond market is “still looking for normalization, before risk appetite or the pipeline can come back stronger.”
The Chinese manufacturing report, which if confirmed in the final version Aug. 1 would be the lowest in 11 months, came as Asian corporates almost tripled dollar bond offerings this month compared with June. Concern that the world’s second-biggest economy will slow further has weighed on sentiment in global markets.
The Markit iTraxx Australia index rose four basis points to 117, Westpac prices show. The cost of protecting China’s sovereign debt rose by five basis points to a one-week high of 102.5 basis points.
Indian Oil Corp. raised $500 million from the sale of 10-year notes at 5.75 percent yesterday, bringing the Asian tally so far this month to $1.425 billion from four offerings, according to data compiled by Bloomberg. Debt sales amounted to $500 million in June, the slowest month since December 2008.
Hong Kong-based electricity producer Meiya Power Co. yesterday hired banks to arrange investor meetings that may be followed by a dollar bond offering, according to a person familiar with the matter. China Huaneng Group Corp. was the last Chinese company to sell dollar notes on June 4.
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.