China Builders Lead Dollar-Bond Declines as Asia Debt Risk RisesRachel Evans
Chinese property developers are leading a decline in dollar-denominated bonds sold by the nation’s issuers this year as Asian credit risk climbs to the highest in almost four months.
Notes sold by Yuzhou Properties Co., a builder based in the coastal city of Xiamen, fell almost 5 cents below its issue price, leading losses by 78 percent of fixed-rate bonds sold by Chinese and Hong Kong borrowers since Dec. 31, according to data and prices compiled by Bloomberg. A gauge of Asian corporate and sovereign bond risk is on track for its highest close since Oct. 2, according to Australia & New Zealand Banking Group Ltd. and data provider CMA.
China is struggling to rein in excess lending while supporting growth that economists surveyed by Bloomberg forecast will slow to 7.5 percent this year. The nation’s banking regulator told regional offices to closely monitor credit risks from trust and wealth management products amid concerns a product distributed by Industrial & Commercial Bank of China Ltd. could default.
“Bond issuance has been pretty intensive which definitely caused some indigestion,” said Agnes Wong, a Hong Kong-based credit analyst at Nomura Holdings Inc. “Concern over trust financing and tight liquidity in China are also partly responsible for the underperformance.”
Developers from Hong Kong and China have sold $6.4 billion of bonds this month, 10 times more than in December, data compiled by Bloomberg show. The Markit iTraxx Asia index of credit default swaps climbed 2.5 basis points to 152 basis points as of 3:29 p.m. in Hong Kong, according to ANZ prices.
China Credit Trust Co. is advising those who put money into a troubled trust product to contact their ICBC financial adviser after the company reached an agreement on a potential investment, according to a statement on its website today. The 3 billion-yuan ($496 million) product raised funds for coal miner Shanxi Zhenfu Energy Group, which collapsed after its owner Wang Pingyan was arrested in 2012 for illegally collecting deposits.
Investors are fleeing to haven assets after a survey last week indicated Chinese factory output may shrink and emerging-market currencies from Turkey to Argentina tumbled ahead of a meeting of the U.S. Federal Reserve from tomorrow.
Chinese manufacturing may contract for the first time in six months, according to a preliminary reading of a Purchasing Managers’ Index released Jan. 23 by HSBC Holdings Plc and Markit Economics. The gauge came in at 49.6, missing a 50.3 median estimate of 19 analysts in a Bloomberg survey. Readings below 50 signal contraction.
The Federal Open Market Committee starts a two-day meeting tomorrow. Analysts from Deutsche Bank AG to Bank of America Corp. expect the central bank to trim bond purchases by a further $10 billion after starting to wind back unprecedented stimulus following their last meeting in December.
The Markit iTraxx Australia index increased 5 basis points to 112 basis points, ANZ prices show. The index is on track for its highest close since Oct. 14, 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 added 2 basis points to 87.3 basis points as of 4:29 p.m. in Tokyo, Citigroup Inc. prices show. The measure is poised for its highest close since Nov. 14, according to CMA.
Credit-default swap indexes are benchmarks for protecting 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.