Asia Company Debt Investors Make Money for First Time in 8 Weeks

Investors in U.S. dollar-denominated securities sold by Asian companies are making money for the first time in eight weeks after a corporate-bond rout drove premiums to a nine-month high.

The notes returned 0.43 percent this week through yesterday, the first gain since the period ended May 10 and the biggest since the last week of February, according to Bank of America Merrill Lynch indexes. Bondholders lost 4.34 percent in the three months to June 30, the most since the third quarter of 2011, the indexes show.

Spreads widened to a nine-month high of 359 basis points on June 26 after the Federal Reserve said it would consider tapering bond purchases later this year. The central bank may end its unprecedented stimulus program by mid-2014, provided the U.S. economy performs as forecast. While yield premiums may rise as much as 50 basis points further, there are already some bargains, according to Maybank Asset Management Singapore Pte.

“Some of the credits now offer a lot of value,” said Rachana Mehta, the Singapore-based head of fixed-income at the money manager. “I see value in Chinese properties and banks in Sri Lanka and India, for bonds with up to a five-year maturity.”

The worst corporate-bond rout since the credit crisis left 98 percent of Asia’s dollar-denominated bonds sold last quarter at a discount, according to data compiled by Bloomberg.

Some higher-quality names that offer comfort about credit and the stability of the business are attractive at current spreads, according to Bryan Collins, a Hong Kong-based portfolio manager at Fidelity Worldwide Investment.

Fund Outflows

Investment-grade bonds gained 0.27 percent since June 28, according to Bank of America’s Asian Dollar Investment Grade Corporate Index, while high-yield notes climbed 0.92 percent. The securities declined 3.42 percent and 4.65 percent respectively in June.

The rebound came as a credit crunch in China eased after overnight interbank rates declined for a second week. Funds dedicated to Asia ex-Japan bond markets saw $267 million of outflows in the week through July 3, compared with $1.5 billion in the preceding week, Australia & New Zealand Banking Group Ltd. said in a note today, citing EPFR Global data.

“China funding concerns have eased from the peaks,” said Anand Subramanian, a senior trader in high-yield trading in Singapore at Deutsche Bank AG. A slowdown in fund outflows has also helped, he said in an e-mail today.

Bond Risk

The cost of insuring corporate and sovereign bonds from non-payment in the Asia-Pacific region declined, according to traders of credit-default swaps.

The Markit iTraxx Australia index fell 5 basis points to 132 basis points as of 10:12 a.m. in Sydney, according to National Australia Bank Ltd. The index is on course for its lowest close since June 19 and a fall of 5.1 basis points this week, according to data provider CMA.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan slid 5 basis points to 158.5 as of 8:11 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. The gauge is set for its lowest close since July 2 and a 6.1 basis-point rise this week, 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 declined 1.5 basis points to

104.5 basis points as of 9:20 a.m. in Tokyo, Citigroup Inc. prices show. The index is on track for its lowest close since July 2 and a 5.3 basis-point drop this week, 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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