Bank of China, JPMorgan See Asia Dollar Bond Binge Surviving Fed

  • Asia dollar bond issuance surged 149% to $10 billion in August
  • Momentum will continue through the rest of the year: Follett

Asia dollar bond underwriters Bank of China International Ltd. and JPMorgan Chase & Co. see the market surviving a possible Federal Reserve rate increase this month, after a record August for issuance.

Bonds issued in the greenback by organizations in Asia excluding Japan reached $10 billion in August, a record for that month, up 149 percent from a year earlier, Bloomberg-compiled data show. Junk note offerings surged 266 percent to $2.6 billion. Asian companies face $18 billion of dollar debenture maturities by year-end and a record $103.7 billion next year, according to the data.

Fed Chair Janet Yellen said last Friday the case to raise rates is getting stronger as the U.S. economy approaches the central bank’s goals. The odds of an increase later this month stand at 36 percent, up from 18 percent a month ago, according to futures trading data. While the average yield on Asian dollar bonds has risen 5 basis points in the latter half of August, it is still near the 3.8 percent all-time low on Aug. 15, according to JPMorgan indexes.

“The potential September rate hike may affect the shorter end of the yield curve, but the absolute yield will still be very low,” said Samson Lee, head of debt capital markets at Bank of China International, the fourth-ranked underwriter of Asia ex-Japan dollar bond issuance this year. “Investors seem to have taken a more balanced view and are still putting their money to work.”

Given significant refinancing requirements starting from early 2017, Asian high-yield issuers have been trying to take advantage of the current attractive window, said Mark Follett, head of debt capital market origination for Asia ex-Japan at JPMorgan, ranked No. 6 this year for underwriting of dollar bond sales in Asia outside Japan this year.

Junk-rated Road King Infrastructure Ltd. sold $500 million notes at 4.7 percent this week, far lower than the 9.875 percent on securities sold in 2012. Xinyuan Real Estate Co., another Chinese builder, sold $300 million notes at 8.125 percent last week, compared with 13.35 percent on debt sold in 2013.  

“While potential threats to this momentum exist, such as the risk of strong U.S. data and faster rate increases, the uncertain medium-term rate outlook combined with a likely measured pace of bond supply should support the momentum to continue,” said Follett.

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