Dollar Bond Yields in Asia Rise for Sixth Week Before Fed MeetsYusuke Miyazawa
Yields on Asian debt in the U.S. currency rose for a sixth straight week ahead of a two-day Federal Reserve meeting that starts tomorrow. The cost to insure bonds in the region against non-payment rose.
Average yields for Asian borrowers in dollars climbed 19 basis points last week to 4.9 percent, making it the longest stretch since the period ended July 1, 2011, according to JPMorgan Chase & Co. indexes. The gauge climbed to 5.01 percent on June 13, its highest since February 2012, the data show.
The Federal Open Market Committee will release its quarterly economic forecasts on June 19 at the conclusion of its meeting, followed by a press conference with Chairman Ben S. Bernanke. Bond prices have slumped since Bernanke told Congress’s Joint Economic Committee on May 22 the Fed could curb stimulus “in the next few meetings” if the employment outlook shows “sustainable” improvement.
“The Fed’s tapering is forcing investors to reevaluate the risks and take a fresh look at the spreads,” Manabu Tamaru, a Tokyo-based fund manager overseeing $528 million of fixed-income investment at Baring Asset Management (Japan) Ltd. “Some emerging economies are facing renewed skepticism about creditworthiness and ability to repay their dollar funding.”
Dollar-denominated notes in Asia have lost 2.5 percent since March 31, on course for the first quarterly loss since the three-month period ended September 2011, the index data show. While average yields slid 11 basis points on June 14, the biggest daily decline since Oct. 13, 2011, volatility has kept issuers on the sidelines as investors await more clues on Fed policy.
Ten-year Treasury yields have fallen from a 14-month high as the International Monetary Fund urged the central bank to carefully manage its exit plan to avoid disrupting financial markets. The Fed will reduce its buying to $65 billion a month before the end of the year, according to the median estimate in a Bloomberg survey of 59 economists.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan climbed 3 basis points to 135 basis points as of 8:18 a.m. in Singapore, Westpac Banking Corp. prices show. The benchmark fell the most in nine months on June 14, according to data provider CMA.
The Markit iTraxx Japan index increased 2 basis points to 109.5 as of 9:21 a.m. in Tokyo, according to Citigroup Inc. prices. The gauge rose for five consecutive weeks through June 14, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The Markit iTraxx Australia index declined 3 basis points to 129 basis points as of 10:20 a.m. in Sydney, according to National Australia Bank Ltd. prices. The measure is set for its second straight daily fall, CMA prices 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.