JPMorgan Says Summer for Asia Dollar Bond Sales to Extend

  • Dollar bond sales in Asia rise to record high since June 30
  • JPMorgan says momentum to stay strong through this year

The busy summer for Asia’s dollar bond market looks set to be extended to the end of the year as investors’ demand remains “robust,” according to JPMorgan Chase & Co.

Dollar bond sales in Asia excluding Japan reached $23.9 billion since June 30, 48 percent up from the $16.2 billion in the same period of 2015, according to Bloomberg data. That’s a record for the period. The extra yield over Treasuries that investors demand to hold U.S. currency notes from the region’s issuers slid 21 basis points this month to 204 on Aug. 16, the lowest since 2007, according to a Bank of America Merrill Lynch index.

“We expect the momentum to stay strong for the rest of the year driven by the robust investor demand for higher-yielding assets in today’s low rate environment,” said Mark Follett, Hong Kong-based head of Debt Capital Markets for Asia excluding Japan at JPMorgan, which ranks sixth in managing Asia ex-Japan dollar bond sales in 2016. “Relative to many parts of the world, Asian credit in general offers better stability and return for an equivalent rating profile, and this will further support the strength of the demand.”

Global investors are flooding into Asian corporate bonds after sovereign yields from Japan to Germany dropped below zero. The 3.7 percent yuan depreciation for the past year is also luring Chinese funds into the Asian dollar bond market. Goldman Sachs Group Inc. estimated foreign-exchange outflows out of China climbed to $55 billion in July, from $49 billion in June.

Rising Demand

Odds of an increase in U.S. borrowing costs by year-end stand at 47 percent, down from 51 percent on Tuesday, according to futures trading data compiled by Bloomberg.

“We don’t anticipate any expectations on the Fed’s next move will have a major impact on financing costs in the near term,” said Follett. “Demand for credit will have a greater impact on pricing than underlying rates.”

Chinese investors’ demand for Asian dollar bonds has been on the rise in the past six to 12 months, Ben Yuen, fixed income chief investment officer at BOCHK Asset Management, said at a press briefing this month.

Firms from China sold $13.7 billion of dollar bonds in the offshore market this quarter, up from $11.2 billion in the same period of 2015, data compiled by Bloomberg show. The previous three quarters’ sales all declined from the year-earlier periods.

“Chinese companies’ offshore dollar bond sales in the second half may exceed that in the first half of this year, especially high-yield property developers,” said Xie Tong, China head of debt capital markets at JPMorgan, in a phone interview from Beijing. “The low borrowing costs would encourage other high-yield issuers, who are still watching, to sell bonds offshore.”

— With assistance by Lianting Tu, and Judy Chen

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