Dollar Bond Redemptions Loom in Asia as Regional Debt Risk Rises

Borrowers in Asia outside Japan must repay $3.7 billion of U.S. dollar-denominated notes maturing in the next two months as bond risk in the region rises back toward a one-year high.

Debt maturing by July 31 totals $3.1 billion and $624 million will fall due in August, according to data compiled by Bloomberg. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan climbed 2.5 basis points to 152.5 basis points as of 8:42 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The gauge marked a one-year high of 177.8 on June 24, according to data provider CMA.

Only China Huaneng Group Corp. and Korea Gas Corp. sold new dollar bonds last month, data compiled by Bloomberg show. Borrowing costs in the currency surged after Federal Reserve Chairman Ben S. Bernanke said stimulus may be scaled back this year if the economy meets expectations. U.S. payrolls probably grew by 165,000 workers last month after rising by 175,000 in May, according to the median forecast in a Bloomberg survey ahead of July 5 figures from the Labor Department.

“Credit risk is important in an environment of rising yields and you will need familiar names to pave the way” when the market thaws, said Jerry Gwee, a credit strategist in Singapore at Oversea-Chinese Banking Corp. “I don’t think anybody will be very gung-ho before payrolls.”

Among debt coming due, SM Investments Corp., a Philippine mall operator, has $245.6 million maturing on July 18, while a $500 million note from Korea National Oil Corp. matures on July 22, according to Bloomberg data. The Sri Lanka government has two bonds totaling $593 million due on July 15.

Default Swaps

The Markit iTraxx Japan index of 50 investment-grade companies rose 0.5 basis point to 102 as of 9:40 a.m. in Tokyo, Citigroup Inc. prices show. The measure is poised to end six consecutive days of declines, according to CMA.

The Markit iTraxx Australia index was little changed at 134 basis points as of 10:40 a.m. in Sydney, according to National Australia Bank Ltd. The gauge ranged from 96.1 to 149.5 last quarter, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated 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.

Before it's here, it's on the Bloomberg Terminal.