Asia Dollar Bonds Face Longest Drought Since July on Fed Concern

Issuance of U.S. dollar-denominated bonds in Asia is set for the longest drought in four months after a Federal Reserve official said the central bank could taper stimulus as early as next month.

Borrowers in Asia outside Japan are poised to withhold dollar offerings for a fifth straight business day, the longest streak since an eight-day lull through July 10, data compiled by Bloomberg show. Average yields on the notes have risen to a four-week high at 5.29 percent, according to JPMorgan Chase & Co. indexes.

U.S. Treasury yields jumped to an eight-week high yesterday amid mounting speculation that the Fed could pare note purchases earlier than expected, following a positive jobs report last week. While Fed Bank of Atlanta President Dennis Lockhart said he wants to see inflation accelerate before any such tapering, he also said that a move to trim the central bank’s stimulus “could very well take place” next month.

“Activity in the primary side has slowed down since last week’s U.S. jobs number, and now all eyes will be set on the December numbers, which will dictate investor appetite,” said Clifford Lau, head of fixed income for Asia-Pacific at Threadneedle Investments Singapore Pte. The company is part of Ameriprise Financial Inc., which had $735 billion of assets under management as of Sept. 30. “I think investors can afford to sit on cash for the minute though as there was quite a lot of activity since September.”

Government reports last week showed employers in the U.S. increased payrolls in October by a more-than-expected 204,000 workers, and the economy grew at a faster-than-forecast rate of 2.8 percent last quarter.

Bond Risk

The cost of insuring Asia-Pacific corporate and sovereign bonds from non-payment increased, according to traders of credit-default swaps.

The Markit iTraxx Australia index jumped 3 basis points to 106.5 basis points as of 11:15 a.m. in Sydney, according to Westpac Banking Corp. prices. The benchmark is poised for its highest close since Oct. 25, according to data provider CMA.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 1 basis point to 140 as of 8:21 a.m. in Singapore, Australia & New Zealand Banking Group Ltd. prices show. The measure, which also advanced the past two days, is set to close up 10 basis points from Oct. 31, 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 was little changed at 90.8 basis points as of 9:15 a.m. in Tokyo, Citigroup Inc. prices show. The gauge has ranged from 74 to 148.1 this year, 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.

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