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Asian Dollar Bond Yields Rise Most in 6 Weeks as Funds Exit Debt

Aug. 20 (Bloomberg) -- Yields on U.S. dollar-denominated bonds sold by Asian issuers rose the most in six weeks yesterday as investors pull cash from the region in favor of more developed economies. Bond risk climbed.

Average rates rose 13 basis points, the most since July 8, to 5.57 percent yesterday, according to JPMorgan Chase & Co. indexes. The cost of insuring the region’s corporate and sovereign bonds against non-payment meanwhile increased to the highest level in almost six weeks, according to traders of credit-default swaps.

Emerging-market bond funds have leaked money since late May as investors reposition amid signs of recovery in the U.S. and Europe and ahead of an expected slowdown in U.S stimulus, data from EPFR Global show. Investors are waiting for the Federal Reserve to release minutes from its July meeting this week for guidance on the timing of bond-purchase reductions. Some 65 percent of economists surveyed by Bloomberg expect the central bank to begin paring stimulus next month.

“The market is getting back into fundamentals,” said Louisa Lam, a Hong Kong-based credit analyst at HSBC Holdings Plc. “People are very defensive so the primary market has paused for a while.”

The Fed’s first step may be small, with monthly purchases tapered by $10 billion to a $75 billion pace, according to the median estimate in a survey of 48 economists conducted Aug. 9-13.

Flows into Europe debt funds climbed to a six-week high in the week to Aug. 14, EPFR data show, after the euro area’s economy expanded 0.3 percent in the three months through June, ending a record-long recession. Weakening economies in Asia, where Chinese growth is slowing, meanwhile look less attractive.

Risk Climbs

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 5 basis points to 158.5 basis points as of 8:17 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. The gauge is set for its highest close since July 10, according to data provider CMA.

The Markit iTraxx Australia index increased 5 basis points to 126 as of 10:53 a.m. in Sydney, according to Westpac Banking Corp. prices. The benchmark last closed higher on July 17, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

The Markit iTraxx Japan index climbed 2 basis points to 100 as of 9:24 a.m. in Tokyo, according to Citigroup Inc. prices. The measure is set for its highest closing level since July 31, 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.

To contact the reporter on this story: Rachel Evans in Hong Kong at revans43@bloomberg.net

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net

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