Asia Bond Risk Rises as China Slowdown Prompts Stimulus PledgesRachel Evans
Bond risk in Asia increased to the highest in more than a week as concerns that China’s growth is slowing prompted Premier Li Keqiang to pledge fresh stimulus.
The Markit iTraxx Asia index jumped 7 basis points to 141 as of 8:46 a.m. in Singapore, Westpac Banking Corp. prices show. The gauge, which tracks costs to insure Asian corporate and sovereign bonds from default, is poised to rise for a third day, the longest stretch in more than a month, according to data provider CMA. China’s credit-default contracts rose 6 to 103.5 yesterday, the worst performance in the Asia index.
Premier Li said China will accelerate railway construction and his cabinet approved tax breaks for small businesses after a preliminary survey yesterday showed manufacturing weakened further this month. The State Council also reduced fees for exporters. Government measures should help investors get more comfortable with China risk and identify industries set to benefit most, according to Hang Seng Investment Management Ltd.
“Bond investors should look at which sectors have government support and then go into bonds from that sector,” said Gordon Tsui, deputy chief investment officer at the asset manager. “So long as the Chinese government is taking measures to stabilize investor confidence, as a bond investor I do not see too much credit risk, but prices might fall in the short term.”
The world’s second-biggest economy is set for its slowest growth since 1990 this year at 7.5 percent, according to the median estimate of 65 economists surveyed by Bloomberg. The flash manufacturing purchasing managers’ index released by HSBC Holdings Plc and Markit Economics yesterday fell to 47.7 from
48.2 in June. Readings below 50 indicate contraction.
The Markit iTraxx Australia index climbed 3 basis points to 118 basis points as of 10:47 a.m. in Sydney, according to National Australia Bank Ltd. prices. The benchmark has traded between 113 and 139.8 this month, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.
The Markit iTraxx Japan index rose 1.5 basis points to 95.5 basis points as of 9:19 a.m. in Tokyo, according to Citigroup Inc. prices. The measure is heading for its highest close since July 11, CMA data 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.