Indonesia Leads June Slump in Asian Debt as Goldman Cuts Outlook

Dollar-denominated bonds sold by Indonesian borrowers led losses among major Asian peers as the nation’s first fuel price increase since 2008 sparked protests and prompted Goldman Sachs Group Inc. to cut its economic view.

The notes declined 8.5 percent since May 31 versus a slide of 6 percent for Chinese debt, JPMorgan Chase & Co. indexes show. Indian notes lost 5 percent and Taiwanese notes 2.1 percent. The 5.625 percent bonds of Indonesian oil company PT Pertamina Persero due May 2043 yield 7.08 percent while those of coal producer PT Bumi Resources due October 2017 with a 10.75 percent coupon yield 20.49 percent.

The cost of insuring Indonesia’s sovereign debt reached the highest level in 20 months as investors withdraw the most amount of money from emerging markets since 2011. Economists have reduced the Southeast Asian nation’s growth forecast for next quarter to 1.7 percent from 2.4 percent in the biggest cut since Bloomberg began quarterly surveys in August. Goldman Sachs this week pared its outlook for the year to 6 percent from 6.4 percent as the higher fuel prices curb consumption.

“Concern over Indonesia’s economy and expectations of a tapering in Fed easing are weighing on investor sentiment,” said Brayan Lai, a Singapore-based analyst in emerging-market credit trading at Jefferies Group LLC. “Investment-grade names such as Pertamina have sold off tremendously, which also impacted the performance of high-yield issues.”

Yields Surge

The price of subsidized gasoline in Indonesia was increased by 44 percent, Energy and Mineral Resources Minister Jero Wacik said June 21 in a press briefing in Jakarta. Protests against the plans had erupted across the country earlier in the week.

The Federal Reserve has said it may ease asset purchases this year and end its bond buying program in mid-2014 if economic growth is in line with its projections.

Average yields on Indonesian debt surged 120 basis points this month to 6.16 percent and touched a three-year high of 6.31 percent on June 24, JPMorgan data show. The spread over Treasuries widened 75 basis points, or 0.75 percentage points, to 349 basis points, on track for the biggest monthly rise since September 2011.

The cost of insuring Indonesian government debt against non-payment using five-year credit-default swaps soared to 271.1 basis points on June 24, the highest since October 2011.

Pertamina Worst

No company in Asia outside Japan is marketing bonds in the U.S. currency after China Huaneng Group Corp. sold $400 million of notes on June 4, data compiled by Bloomberg show. Jakarta-based Pertamina was the last Indonesian issuer to sell notes, raising $3.25 billion on May 13 in a two-part sale to bring the nation’s tally this year to $9.4 billion versus $11.6 billion in all of 2012.

The oil company’s notes were the worst performing among bonds sold by Asian companies outside Japan this quarter as of June 25. Four of the 10 biggest decliners were from Indonesian issuers, according to data compiled by Bloomberg.

Elsewhere in Asia’s bond market, Pacnet Ltd. terminated a tender offer to buy back its 9.25 percent notes maturing in November 2015, “following a review of market conditions,” it said in a statement late yesterday. The company, which operates undersea cable networks from Japan to India, had received 96.9 percent acceptances from bondholders on June 21 since its June 10 offer. Pacnet had earlier hired four banks to sell new 2018 bonds to help fund the buyback.

Credit Risk

Credit risk around the region declined today.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan slid 10 basis points to 150 basis points as of 9:01 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. That pares the gauge’s advance to 33.6 basis points this month and 27.8 basis points this quarter, according to data provider CMA.

The Markit iTraxx Australia index retreated 6 basis points to 136 as of 10:39 a.m. in Sydney, National Australia Bank Ltd. prices show. The benchmark is set for its lowest close since June 19, reducing its rise since May 31 to 23.6 basis points and its advance this quarter to 13, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Japan index fell 5.5 basis points to 112 basis points as of 9:43 a.m. in Tokyo, Citigroup Inc. prices show. The measure, which has increased 15.5 basis points in June, is down 1 basis point this quarter, according to CMA.

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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