Indonesia Leads New Bonds Higher as U.S. Investors Buy Asia Debt

Indonesia is leading gains by new dollar-denominated debt offerings from Asia outside Japan this month as U.S. investors shrug off concerns about slowing regional growth and boost bond buying.

The sovereign sold 24 percent of a $1.5 billion issue of shariah-compliant notes to U.S. accounts last week, according to a person familiar with the matter, who asked not to be identified because the details are private. That’s double the 12 percent share of the nation’s last dollar sukuk in November, a separate person said. China’s Wuzhou International Holdings Ltd. continues to market five-year bonds.

Indonesia is grappling with a record current account deficit and budget shortfall that spurred a 15 percent plunge in its currency this year. Debt from the nation’s corporates lost almost 6 percent last month, the worst emerging market globally, Bank of America Merrill Lynch indexes show. Asian developing-market bonds fell 1.3 percent, the data show. The region, where growth will slow to 6 percent this year, offers “tremendous opportunities,” Credit Agricole CIB wrote in a note today.

“With pronounced selling in global emerging markets over the past few months, there’s an argument that certain jurisdictions may now offer good value,” said Duncan Phillips, the Hong Kong-based head of Asia-Pacific syndicate at Citigroup Inc. “Encouraged by some meaningful new-issue concessions, it seems U.S. investors might be leading a new buying trend.”

Best Performing

Indonesia priced its notes, which are the best performing new securities sold this month, at 6.125 percent, the highest yield since 2009, according to data compiled by Bloomberg. The debt, sold to investors at par, was quoted at 102.2 cents on the dollar as of 11:45 a.m. in Hong Kong, Bloomberg prices show.

Bonds from India and Sri Lanka were the second and third-worst performers last month respectively, Bank of America Merrill Lynch indexes show. Debut dollar bonds from Sri Lanka’s National Savings Bank were trading a 101.2 cents on the dollar as of 11:46 a.m. in Hong Kong after pricing at par on Sept. 12. U.S investors bought 39 percent of the debentures.

“When we talk about outflows or a sell off, part of that was attributable to market dislocation,” said Edwin Chan, the head of Asian credit research at UBS AG. “Market dislocation isn’t something we expect to carry on forever. When some stability returns, we should see interest coming back to emerging markets given where valuations are.”

Wuzhou International

Wuzhou International, a Chinese developer that first listed shares in Hong Kong in June, is considering paying the most by an Asian issuer for U.S. currency debt in 10 months. The company plans to sell 2018 notes yielding in the high 13 percent area, a person familiar with the matter said yesterday.

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

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan decreased 1 basis point to 132 as of 8:21 a.m. in Singapore, Westpac Banking Corp. prices show. The measure, which has ranged from 99.5 to 177.8 since Dec. 31, is poised to decline 31.4 basis points 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 Australia index declined 1 basis point to 110 basis points as of 10:29 a.m. in Sydney, according to National Australia Bank Ltd. prices. The gauge is set for its lowest close since May 29, according to data provider CMA.

The Markit iTraxx Japan index dropped 0.5 of a basis point to 83.5 basis points as of 9:16 a.m. in Tokyo, Citigroup Inc. prices show. The indicator, which traded between 74 and 148.1 basis points this year, touched a four-month low of 84 yesterday, CMA data show. A close of 83.5 would be the lowest since May 23.

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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