Korea Midland Power Co. is offering dollar-denominated bonds after a six-year lull as benchmark Treasury yields near a three-month low and credit risk in the region falls.
The unit of Korea Electric Power Corp. is marketing the five-year notes at a yield premium of about 155 basis points, according to a person familiar with the matter, who asked not to be identified because the matter is private. Seoul-based Korea Midland sold $300 million of similar-maturity securities in February 2008 at a 198 basis-point spread, Bloomberg data show.
Ten-year Treasury yields fell as low as 2.568 percent on Feb. 3, the least since Nov. 1, and were down 1.7 basis points at 2.614 percent as of 1:24 p.m. in Tokyo, Bloomberg Bond Trader data show, as economists said employment reports this week will show the U.S. economy is having trouble picking up. Hyundai Capital America, a unit of South Korea’s Hyundai Motor Co., has been the only company in Asia outside Japan to sell dollar bonds this week, pricing $1.5 billion of notes in a two-part sale on Feb. 3.
“Asian issuers are capitalizing on falling U.S. Treasury yields,” said Hemant Dharnidharka, the Bangalore-based head of credit research at SJS Markets Ltd. “Utilities in the region have to borrow even if it’s slightly costlier because they need the funds.”
Korea Gas Corp. was the first utility in Asia to tap the dollar bond market this year, raising $200 million via 4 percent notes due 2024 on Jan. 8, according to data compiled by Bloomberg. Hong Kong & China Gas Co. sold $300 million of perpetual bonds at a yield of 4.75 percent on Jan. 21.
Dollar bond yields in Asia averaged 5.231 percent yesterday, close to an almost two-month low of 5.226 percent reached the day prior, JPMorgan Chase & Co. indexes show. Companies and sovereigns in the region raised $22.6 billion in the U.S. currency last month, 3 percent less than in January 2013, which was the busiest month on record, data compiled by Bloomberg show.
Federal policy makers said on Jan. 29 the U.S. central bank will trim its monthly bond purchases by a further $10 billion to $65 billion, cutting the pace of stimulus for a second straight meeting. Hyundai Capital America’s sale ended a three-day drought which was the longest without any offerings since the week ended Jan. 3, Bloomberg data show.
Markets in mainland China remain closed for holidays today and will reopen Feb. 7.
The cost of insuring corporate and sovereign bonds in the Asia-Pacific region from non-payment fell, according to traders of credit-default swaps.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan decreased 3 basis points to 151 basis points as of 8:12 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. The gauge is on track for its lowest close since Jan. 30, according to data provider CMA.
The Markit iTraxx Australia index slid 2.8 basis points to 107.3 basis points as of 11:04 a.m. in Sydney, according to Citigroup Inc. The index is poised for its biggest drop since Jan. 28 and lowest close since Jan. 31, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The Markit iTraxx Japan index declined 2 basis points to 86.3 basis points as of 9:18 a.m. in Tokyo, Citigroup prices show. The benchmark, poised to fall for the first time in three days, is on track for its lowest close since Feb. 3.
Credit-default swap indexes are benchmarks for protecting 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.