Dollar Bond Sales Slow as Lunar New Year Lead-up Quietens Market

Borrowers in the Asia-Pacific region paused marketing U.S. dollar-denominated bonds for a second consecutive business day as activity quietens ahead of Chinese New Year holidays next week. Bond risk fell.

Note sales surged to a record $36.8 billion in January, according to data compiled by Bloomberg going back to 1999. That compared with a monthly average of $7.1 billion in the 14-year period. The cost of insuring Asian corporate and sovereign bonds from non-payment fell to its lowest level since Jan. 30, according to credit-default swap traders.

The window of opportunity before Chinese New Year is quickly closing, and that suggests the primary pipeline will slow this week, said Mark Reade, a Hong Kong-based credit desk analyst at Credit Agricole CIB. There will still be a few issuers looking to access the market while more investors are still at their desks, he said.

Markets in China, the world’s second-biggest economy, will close for Lunar New Year holidays Feb. 11 to Feb. 15. The festival is also celebrated in Singapore and Malaysia, shutting markets for part of the week in those countries too. Average yield premiums on dollar bonds in Asia rose four basis points to 262 basis points more than Treasuries Feb. 1, JPMorgan Chase & Co. indexes show. The gauge touched 245 basis points Jan. 7, the least since May 2011.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan decreased two basis points to 113 basis points as of 8:26 a.m. in Hong Kong, Westpac Banking Corp. prices show. The gauge climbed 2.8 basis points in January, rising for a second consecutive month, according to data provider CMA.

Biggest Sale

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.

National Australia Bank Ltd. sold the biggest bond last month with a $2.5 billion three-part offering Jan. 14, according to data compiled by Bloomberg. The Melbourne-based bank’s $750 million of 3 percent notes due 2023 and sold at a 117 basis point-spread over Treasuries were trading a spread of 123.9 basis points as of 3:08 p.m. in Sydney, prices quoted by Australia & New Zealand Banking Group Ltd. on Bloomberg show.

The Markit iTraxx Australia index dropped two basis points to 117 as of 11:26 a.m. in Sydney, according to Westpac prices. The benchmark is set to extend its decline this year to 10.5 basis points, after retreating for a fifth straight month in January, 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 fell one basis point to 128 basis points as of 9:28 a.m. in Tokyo, according to Citigroup Inc. prices. The measure is headed for its lowest level since August 2011, CMA prices show.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.