Asian Issuers Stall Dollar Bond Sales, Returns at Five-Year Low

Companies in Asia outside Japan paused marketing dollar-denominated notes today as markets quieten in the lead up to Christmas. Bond returns in the region are poised for their first annual loss in five years.

U.S.-currency securities have fallen 0.3 percent since Dec. 31, set for their first 12-month decline since 2008 when they lost 14 percent, Bank of America Merrill Lynch indexes show. There haven’t been any dollar bond sales in Asia since Dec. 5, the longest lull since the five business days through to Nov. 14, according to data compiled by Bloomberg.

Investors are weighing the timing of any cuts to the Federal Reserve’s monetary support amid budget negotiations in Washington. China’s trade surplus widened last month to the most in more than four years as exports exceeded estimates, a sign global demand is helping sustain a recovery in the world’s second-biggest economy.

“Fed tapering is in the mind of issuers as well, and they would like to price deals before the tapering announcement, if possible,” Shankar Narayanaswamy, the Singapore-based head for credit strategy at Standard Chartered Plc, said in a phone interview today. “Issuance will be strong in the first quarter of 2014.”

Fed policy makers will probably begin reducing the U.S. central bank’s $85 billion-a-month of bond purchases at a Dec. 17-18 meeting, according to 34 percent of economists surveyed earlier this month by Bloomberg, an increase from 17 percent in a November poll. Last month, 53 percent predicted tapering in March, compared with 40 percent in the more recent survey.

China Dominance

Fed Bank of St. Louis President James Bullard, who votes on policy this year, said in a speech yesterday the odds of tapering bond purchases have risen along with gains in the labor market, and any reduction should be modest to account for low inflation.

China State Shipbuilding Corp. issued an $800 million note on Dec. 5, while Baoshan Iron & Steel Co., the nation’s largest-listed steelmaker, sold $500 million of debt and Pacnet Ltd. a $350 million debenture. Dollar offerings almost tripled to $2.65 billion last week, the highest amount since the five days through Oct. 25, according to data compiled by Bloomberg.

Chinese issuers now represent the single-largest geographical component of JPMorgan Chase & Co.’s Asia Credit Index, accounting for some 25.8 percent of the benchmark by weighting, equivalent to $115 billion, Moody’s Investors Service said in a Dec. 4 report.

Default Swaps

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

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan declined 2 basis points to 132 basis points as of 8:16 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The gauge is falling for a third consecutive business day and is poised to close at its lowest level since Nov. 29, according to data provider CMA.

The Markit iTraxx Australia index also decreased 2 basis points to 101.5 as of 11:07 a.m. in Sydney, Westpac Banking Corp. prices show. The measure is set for its lowest close since Dec. 2, 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 fell 1 basis point to 74.3 as of 9:08 a.m. in Tokyo, Citigroup Inc. prices show. The benchmark, which has ranged from 74 to 148.1 this year, is set for its lowest close since May 22, 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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