Issuance of U.S. dollar-denominated bonds in the Asia-Pacific region including Japan plummeted 72 percent this week and credit risk rose as the U.S. budget impasse stoked investor concern.
Sales slid to $2.75 billion from $9.9 billion in the five-day period ended Sept. 27, the highest since July 2012, according to data compiled by Bloomberg. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan added 2 basis points to 153 basis points as of 8:23 a.m. in Hong Kong, set for its second straight weekly gain, prices from Australia & New Zealand Banking Group Ltd. and data provider CMA show.
Corporate bond sales in the U.S. plunged 81 percent this week as the first partial government shutdown in 17 years paralyzed the market. Some borrowers, including China Petrochemical Corp., are considering sales of international bonds, and the drop in issuance shouldn’t be read as a sign of supply for the rest of the month, said Krishna Hegde, the Singapore-based head of Asia credit research at Barclays Plc. No notes were issued Oct. 1, a holiday in China and Hong Kong.
“A combination of the holiday in Hong Kong and the U.S. shutdown are not helping the bond supply this week,” Hegde said. “We are still expecting a lot of issuance this month since borrowing costs in many segments of the market are still attractive for issuers.”
Average dollar note yields in Asia fell to 5.33 percent on Oct. 3, the lowest since Sept. 26, according to JPMorgan Chase & Co. indexes. In addition to Asia’s largest refiner known as Sinopec, Greenland Hong Kong Holdings Ltd. and SK Broadband Co. also said they are considering offering global bonds.
Origin Energy Ltd. led sales this week with an $800 million issue of 3.5 percent notes, the data show.
Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, sold Asia’s first dollar bond that is Basel III-compliant, according to data compiled by Bloomberg. That $500 million of 10-year securities pays 315 basis points more than Treasuries.
The cost of insuring company and sovereign bonds against non-payment in the Asia-Pacific region rose, according to traders of credit-default swaps.
The Markit iTraxx Australia index jumped 2 basis points to 122 as of 10:34 a.m. in Sydney, according to Westpac Banking Corp. prices. The measure is poised for its third weekly rise, according to CMA
The Markit iTraxx Japan index added 1.5 basis points to 93.75 basis points as of 9:42 a.m. in Tokyo, according to Citigroup Inc. prices. The gauge is set for its biggest daily gain since Sept. 30, 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.