Asia Issuers Pay Most Since July for Dollars as Treasuries Fall

Borrowers in Asia are paying the most in more than 10 months to sell U.S. dollar-denominated bonds after Treasuries fell.

Debt sold by companies and sovereigns from the region rose 4 basis points yesterday to yield an average 4.452 percent, the most since July 13, according to JPMorgan Chase & Co. indexes. The yield on 10-year U.S. government debt rose to the highest since April 2012 as of 5:03 p.m. in New York, Bloomberg Bond Trader data show.

Tokyo Metropolitan Government plans to price five-year bonds today, a person familiar with the matter said, after new debt sales in Asia outside Japan slumped more than 70 percent last week. Federal Reserve Chairman Ben S. Bernanke said May 22 the central bank could slow the pace of asset purchases if officials see indications of sustained improvement in growth. Yields on Asian debt have climbed 14 basis points since, JPMorgan indexes show.

“Rising U.S. Treasury yields are making Asian credit investors a tad nervous,” said Mark Reade, a Hong Kong-based credit analyst at Credit Agricole CIB. “Any further surge in yields could potentially see an unwind of the U.S. dollar ‘carry trade’ which has driven the outperformance of higher yielding assets globally, including Asian credit.”

Benchmark 10-year yields climbed 16 basis points, or 0.16 percentage point, to 2.17 percent in New York trading earlier today. A $35 billion sale of two-year debt attracted the least bids for the securities since February 2011 after reports showed stronger-than-forecast economic data, damping demand for refuge assets.

Sentiment Improves

Consumer confidence in the U.S. climbed to the highest level in more than five years and home prices advanced by the most in seven as the housing rebound gives the world’s biggest economy a lift. The Conference Board’s sentiment index rose to 76.2 in May, exceeding all estimates in a Bloomberg survey of economists and the highest since February 2008, data from the New York-based private research group showed May 28.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 1 basis point to 107 basis points as of 8:18 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. The measure, which touched a one-month high on May 27 before falling yesterday, is now down 0.5 of a basis point since April 30, CMA data show.

Tokyo Met is marketing its notes at about 50 basis points more than swaps, the person familiar with the matter said, asking not to be identified because the terms aren’t set.

The cost of insuring corporate bonds in Japan and Australia against non-payment fell, according to credit-default swap traders.

Credit Risk

The Markit iTraxx Japan index declined 2 basis points to 87 as of 9:15 a.m. in Tokyo, according to Citigroup Inc. prices. The gauge is falling for a second day after reaching a five-week high on May 27, paring its advance for the month to 3.5 basis points, according to data provider CMA.

The Markit iTraxx Australia index dropped 2 basis points to 105 basis points as of 10:23 a.m. in Sydney, according to National Australia Bank Ltd. prices. The benchmark is poised to close at its lowest level since May 23, down 1 basis point this month, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

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.

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