Asian Sovereigns Lose for First Year Since 2008 as Growth Stalls

Dollar-denominated bonds sold by Asia’s sovereigns are losing money for the first time since 2008 as growth slows in four of the region’s five largest economies.

Debt issued by countries outside Japan lost 7.1 percent since Dec. 31, the worst performance in five years, according to JPMorgan Chase & Co. indexes. Quasi-sovereign borrowers, such as Indonesia’s PT Perusahaan Listrik Negara, fell 2.8 percent while corporates gained 1 percent. Emperor International Holdings Ltd., which develops real estate in Hong Kong, Macau and China, hired banks for a possible sale in the U.S. currency, according to a Dec. 10 statement.

Growth from China to India and Indonesia is slowing as local governments look to rebalance their economies and funds flow back to developed markets ahead of expected cuts to record U.S. stimulus. Yields on 10-year Treasuries, the benchmark over which most Asian sovereigns sell bonds, have climbed 72 basis points since the end of May when Federal Reserve Chairman Ben S. Bernanke signaled the central bank would look to wind back its $85 billion-a-month bond purchases.

“Sovereigns were pretty much priced to perfection by May so there was nothing to insulate them” from rising Treasury yields, said Tim Condon, the head of Asia research at ING Groep NV in Singapore. “The taper risk was all people were worried about, so money left the Asia fixed-income space and the asset class underperformed. As people see tapering isn’t catastrophic for the Treasury market, they’ll come back.”

Inappropriate market or policy responses to tapering remain a key risk to sovereign creditworthiness, Standard & Poor’s wrote in a report this week.

Emerging Markets

The Federal Open Market Committee may begin reducing stimulus at a meeting next week, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, an increase from 17 percent in a Nov. 8 survey.

Redemptions from local-currency investments in emerging-market debt climbed to a 14-week high in the week to Dec. 4 while the most money exited global bond funds in 11 weeks, according to data provider EPFR Global.

The cost of insuring corporate and sovereign bonds in the Asia-Pacific region against non-payment increased today, according to credit-default swap traders.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 1 basis point to 129 basis points as of 8:23 a.m. in Singapore, Westpac Banking Corp. prices show. The benchmark, which fell to the lowest since Sept. 23 yesterday, is poised to climb for the first time in five business days, according to data provider CMA.

Japan Risk

The Markit iTraxx Japan index advanced 2.5 basis points to 75.8 as of 9:11 a.m. in Tokyo, Citigroup Inc. prices show. The measure is set to increase for a second consecutive day and is on track for its highest close since Dec. 6, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

The Markit iTraxx Australia index increased 1 basis point to 104 basis points as of 11:12 a.m. in Sydney, Westpac prices show. The gauge is poised for its highest close since Dec. 6 also, 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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