Credit risk in Asia declined from a two-month high as the Export-Import Bank of Korea and Korea Railroad Corp. added to dollar-denominated bond sales this week.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 2 basis points to 165 basis points as of 9:09 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The gauge advanced 11.1 basis points over the last two days to the highest level since June 24, according to data provider CMA.
U.S. currency bond sales in the region have fallen 12 percent this month to $3.6 billion as investors pulled billions of dollars from emerging markets on speculation the Federal Reserve will begin tapering stimulus. Of the 11 offerings since July 31, eight were from borrowers in Asia’s fourth-largest economy. Korea’s government is graded Aa3 by Moody’s Investors Service, the rating company’s fourth-highest investment rank.
“Flows into Korea are still positive in light of what’s going on in emerging markets,” said Jerry Gwee, a credit analyst in Singapore at Oversea-Chinese Banking Corp. “From that technical perspective, high-grade well-known Korean names are interesting.”
Kexim, as the state-owned lender is known, sold an additional $300 million of its notes due October 2016 via a private placement yesterday, according to data compiled by Bloomberg. Korea Railroad sold $200 million of three-year floating-rate notes this week, the data show.
Korea Railroad last sold dollar bonds in June 2012. Those notes, sold at par, were quoted at 101 cents on the dollar yesterday, prices compiled by Bloomberg show.
The average yield on Asian dollar debt rose 1 basis point to 5.64 percent yesterday, the first gain in four days, according to JPMorgan Chase & Co. indexes. The spread over Treasuries rose 10 basis points to 318, the biggest one-day gain since June 24 and the widest since June 26, amid concern about a military strike on Syria.
The Markit iTraxx Australia index decreased 1 basis point to 128 as of 10:16 a.m. in Sydney, according to National Australia Bank Ltd. prices. The benchmark is also poised for its first decline in three days, 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 declined 1 basis point to 98 basis points as of 9:16 a.m. in Tokyo, according to Citigroup Inc. prices. The measure, which has ranged from 90.9 to 110.2 this quarter, is down 2.2 basis points from July 31, according to CMA.
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.