Bank of New York Mellon Corp., the world’s largest custody bank, plans to expand its Hong Kong office to include securities broking this year as it seeks to tap Asian demand for U.S. bonds and stocks.
“We see continued demand for both U.S. fixed-income products and Asian products,” Art Certosimo, BNY Mellon’s chief executive officer for global markets, said in an interview in Hong Kong yesterday. “We have an enormous client base at BNY Mellon, who are all buying and selling securities. There’s no reason why they shouldn’t buy and sell with us.”
The company, which had $27.6 trillion of assets under its custody at the end of 2013, is preparing to expand its securities business in the region after opening a unit in Tokyo in November to provide fixed-income and equities investment services for institutional clients. U.S. bonds are becoming more attractive to global investors after sovereign yields jumped the most in four years in 2013 as markets braced for the Federal Reserve’s stimulus tapering that started last month.
The yield on 10-year U.S. Treasuries climbed 74 basis points in the past year, data compiled by Bloomberg show. Similar-dated AAA corporate debt in the world’s largest economy pay 173 basis points more than sovereign bonds. Government notes due in a decade pay 4.51 percent in China, 8.79 percent in India and 3.53 percent in South Korea. The Fed trimmed its monthly debt buying this year to $65 billion from $85 billion and has pledged to gradually reduce the purchases as the job market improves.
“The U.S. corporate bond market is a very attractive market,” said Certosimo. “It’s a nice, deep liquid market with some reasonable returns. You may find the yields in Asia but not necessarily the liquidity.”
Developing-nation assets are at risk as the Fed’s tapering will probably trigger a reversal of $2 trillion in carry trades, Bank of America Merrill Lynch said in a Feb. 18 note. A Bloomberg customized gauge tracking 20 emerging-market currencies fell to the lowest level since April 2009 on Feb. 3. The index has rebounded 1.5 percent since then.
“We haven’t seen huge migration from emerging markets,” said Certosimo. “What we have seen over the last month is actually a very strong level of patience by investors - not really moving large positions even though there’s a bit of turmoil going on.”
Hong Kong serves as an “entrance” for BNY Mellon into China as policy makers in the world’s second-largest economy step up efforts to free up markets, said Certosimo. BNY Mellon’s global markets team, including the sales and trading divisions, has about 50 people in Asia, he said. The company plans to add as many as five employees in the region this year, most likely in Hong Kong and Singapore in the areas of risk, compliance and finance, he said.
China will expand the yuan’s trading band in an “orderly” way in 2014 and push forward the currency’s convertibility under the capital account, the People’s Bank of China said in a statement yesterday. Governor Zhou Xiaochuan pledged in November that the PBOC would “basically” exit intervention in the foreign-exchange market.
“The liberalization of investments, particularly around the currency controls in China, seems to be going at a faster rate than what everybody would have expected,” said Certosimo. “The very smart coordination with Hong Kong and the use of Hong Kong as an entrance into the mainland continues to be an attractive situation for us.”