Asia Bond Sales Double as Credit Risk Approaches Three-Week Low

U.S. dollar-denominated bond sales in Asia more than doubled this week as the cost to insure notes against default fell to the least since Sept. 23 amid optimism U.S. lawmakers will lift the debt limit and avoid a default.

Issuance in the region outside Japan rose to $5.9 billion, up from $2.65 billion in the five days to Oct. 4, according to data compiled by Bloomberg. China Petrochemical Corp., Asia’s largest refiner known as Sinopec Group, led offerings, borrowing $2.75 billion in a three-part sale on Oct. 9.

Credit risk fell as investors reacted to a House Republican proposal for a short-term increase in the debt ceiling that would reduce the prospects for a U.S. default. The extra yield investors demand to own dollar bonds in Asia over Treasuries dropped for four consecutive days through Oct. 10 to 304.2 basis points, HSBC Holdings Plc indexes show.

“They’re going to resolve the issues sooner or later, no matter what, so the market’s remained calm,” said Louisa Lam, a Hong Kong-based credit analyst at HSBC. “We’ve had quite a bit of supply recently so investors are most focused on primary activities and trades are more on recent new deals.”

China Taiping Insurance Group Co., Greenland Hong Kong Holdings Ltd. and India’s Canara Bank sold bonds in the U.S. currency yesterday, according to data compiled by Bloomberg.

Order Books

China Taiping, a state-owned insurer, issued $400 million of 10-year debentures at a yield of 6 percent, via unit China Taiping New Horizon Ltd., while Chinese developer Greenland Hong Kong issued $700 million of 4.75 percent 2016 securities.

Private banks bought 52 percent of Greenland’s deal and fund managers another 39 percent, a person familiar with the matter said today. The company received orders of some $3 billion from 160 accounts.

India’s Canara Bank offered $500 million of debt due 2018 at a spread of 385 basis points more than Treasuries. The lender received about $2.2 billion of orders from around 185 accounts, another person said.

President Barack Obama would support a short increase in the U.S. debt limit with no “partisan strings attached,” though he prefers a longer extension, White House press secretary Jay Carney said.

U.S. Treasury Secretary Jacob J. Lew warned Congress yesterday that “uncertainty” over the debt limit is starting to stress financial markets and trying to time an increase to the last minute “could be very dangerous.”

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan declined 4 basis points to 142 as of 8:34 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show.

Bond Risk

The Markit iTraxx Australia index dropped 5 basis points to 115.5 basis points as of 11:35 a.m. in Sydney, according to Westpac Banking Corp. The index is on course for its biggest one-day fall since Sept. 19 and its lowest close since that date also, according to data provider CMA.

The Markit iTraxx Japan index fell 6 basis points to 89 basis points as of 9:42 a.m. in Tokyo, Deutsche Bank AG prices show. The index is on track for its biggest one-day decrease since Sept. 19 and its lowest close since that date also, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private 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.

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