Brexit Jitters Spark Longest Jump in Asia Bond Risk in 10 Months

  • Markit iTraxx Asia rises 1.5 basis points to 148 basis points
  • Corporate junk bond yields in region increase from 1-year low

Calm is giving way to caution in Asia’s corporate bond market ahead of Britain’s vote on European Union membership as well as central bank meetings in Japan and the U.S.

The cost of insuring Asian company and sovereign debt against non-payment rose for a fifth day, the longest run of increases in 10 months, according to prices from Westpac Banking Corp. and data provider CMA. The Markit iTraxx Asia index of credit-default swaps advanced 1.5 basis points to 148 basis points, prices from the Australian lender show. As investors shift to haven assets such as government securities, Asian corporate junk note yields have jumped this week, according to a Bank of America Merrill Lynch index.

Volatility rose in global financial markets Monday as Britain appeared to be on course to leave the European Union in a June 23 vote, with four polls from three companies putting the “Leave” campaign ahead of “Remain.” Investors are also bracing for monetary policy decisions from the Federal Reserve and Bank of Japan this week. Average yields on dollar junk notes in Asia jumped 7 basis points to 7.54 percent Monday in their biggest advance in two weeks, off a one-year low marked Friday, the Bank of America index shows.

“Valuations for Asian credit are tight right now, and the rising CDS spreads may be indicating that investors are getting cautious given several risk events on the horizon such as a potential Brexit,” said Nicholas Yap, a credit analyst at Mitsubishi UFJ Securities HK Ltd. in Hong Kong.

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