Asia Bond Risk Climbs to Nine-Month High as Growth Outlook Dims

The cost of insuring Asian corporate and sovereign bonds against non-payment jumped to the highest in nine months after the World Bank cut forecasts for global economic growth.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan surged 12 basis points to 152.5 basis points as of 3:29 p.m. in Singapore, Westpac Banking Corp. prices show. The gauge is set for its highest close since Sept. 3, according to data provider CMA.

The World Bank, which lends to reduce poverty and support development, cut its forecast for 2013 global growth to 2.2 percent from a January prediction of 2.4 percent. Borrowing costs for Asian issuers of dollar notes are surging for a second month as investor risk-tolerance wanes and speculation the Federal Reserve may ease stimulus drives Treasury yields higher.

“We expect continued volatility until we get a more stable U.S. rates environment and ultimately a clearer picture on QE tapering,” said Glenn Hodgeman, global head of credit trading at Westpac.

Yields on Asian debt in the U.S. currency rose 35 basis points this month to 4.96 percent yesterday, after climbing in May by the most since September 2011, JPMorgan Chase & Co. indexes show. The Federal Open Market Committee meets next week.

A slowdown in China, the world’s second-largest economy, is dragging on expansion worldwide, the World Bank said. Industrial production for May missed estimates, according to data released June 9 by China’s National Bureau of Statistics.

Kookmin Meetings

Kookmin Bank, a South Korean lender, is planning to meet bond investors in Asia, Europe and the U.S. from next week, a person familiar with the matter said today, asking not to be identified as the plans are private.

China Huaneng Group Corp. raised $400 million on June 4 in the most recent dollar bond offering from Asia outside of Japan, data compiled by Bloomberg show.

The cost of insuring European corporate debt rose to the highest levels in more than two months, with the Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield ratings climbing 10 basis points to 486 at 10:20 a.m. in London. The region’s investment-grade benchmark rose three basis points to 116, the highest since April 5.

The Markit iTraxx Japan index jumped 11.5 basis points to 110 basis points as of 3:10 p.m. in Tokyo, Citigroup Inc. prices show. The measure is headed for its highest level since April 3, 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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