Dollar Bond Sales Slump in Asia as Costs Leap on Stimulus DoubtsRachel Evans and Benjamin Purvis
Sales of U.S. dollar-denominated bonds by Asian issuers slumped more than 70 percent this week as yields rose the most in almost four months.
Vedanta Resources Plc, the miner controlled by billionaire Anil Agarwal, led $2.1 billion of new sales in the region outside Japan, the least since the week ending April 5 in which companies halted issuance through a holiday period in Hong Kong and China, data compiled by Bloomberg show. Yields climbed 13 basis points to 4.4 percent as of yesterday, on track for the biggest weekly rise since the start of February, according to JPMorgan Chase & Co. indexes.
U.S. Federal Reserve Chairman Ben S. Bernanke signaled a continuation of record stimulus this week, citing a need for “real and sustainable” progress to reduce unemployment, even as some bank officials advocate tapering $85 billion of monthly asset purchases. The cost of insuring corporate and sovereign bonds in the Asia-Pacific region against non-payment today fell from the highest level in three weeks, according to traders of credit-default swaps.
“The prospect of changes to quantitative easing has created some doubts for investors and caused the credit rally to stall a bit,” said Mat McCrum, a Melbourne-based investment director at Omega Global Investors Pty, which manages A$3.2 billion ($3.1 billion). “If the credit rally was still steaming ahead we would get more issuance.”
Vedanta sold $1.2 billion of bonds due January 2019 at 6 percent and $500 million of 10-year securities at 7.125 percent, data compiled by Bloomberg show. Central China Real Estate Ltd., a developer based in Henan province in China, meanwhile raised $400 million, the data show.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan dropped 1 basis point to 106 basis points as of 8:21 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. The gauge is set for its biggest weekly increase in nine weeks, and yesterday rose to the highest since May 2, according to data provider CMA.
The Markit iTraxx Japan index fell 3.5 basis points to 81.25 basis points as of 9:20 a.m. in Tokyo, according to Citigroup Inc. prices. The benchmark climbed 8.33 basis points yesterday to 82.33, the steepest increase this year, 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 declined 0.5 basis point to 103.5 as of 11:07 a.m. in Sydney, according to Westpac Banking Corp. prices. The measure also touched a three-week high yesterday, 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.