Nomura Says Asia Bonds Set for More Drops as ANZ Sees Fragility

Nomura Holdings Inc. says Asian bonds are headed for more declines as Australia & New Zealand Banking Group Ltd. sees fragility amid mounting credit risks.

The cost of insuring corporate and sovereign notes from non-payment in Asia jumped 8 basis points to 138 basis points as of 8:26 a.m. in Singapore, as global share and commodity markets plunged, according to prices from Westpac Banking Corp. That’s the sharpest increase in five months and is set for the highest close since March 2014, according to data provider CMA.

The worsening comes as a global selloff in riskier assets deepens, spurring the biggest retreat in Asian shares since 2011 and sending emerging-market currencies to record lows. Caution is mounting following China’s devaluation of the yuan this month and signs of weakness in the nation’s economy, a growth engine for the region.

“Asia credit was already primed for a catchup on the downside and it did not help that the catalyst for the latest sell-off emerged closer to home: China’s FX devaluation and weak macro data,” said Annisa Lee, a credit analyst at Nomura. “To stay defensive is probably the right strategy.”

The yield premium investors demand to hold Asian corporate bonds in dollars over similar-maturity U.S. Treasuries has leapt to a six-month high of 285 basis points, according to a Bank of America Merrill Lynch index.

“The credit market sentiment is very fragile right now in Asia,” said Owen Gallimore, a senior Asia credit analyst at ANZ in Singapore. “We are seeing selling across the board. It is too early to search for the floor and very few investors are looking to buy at the bottom.”

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