Better times tipped for battered US dollar debt
Jolted by Fed signals for a tapered stimulus, the bond market for Asian G3 issuance has endured a rocky month but traders expect a pickup
Activity in the Asian US dollar bond market is poised to pick up as issuers and investors adjust their expectations in response to the flagged winding down of the United States Federal Reserve's monetary easing programme.
After recovering from the Asian financial crisis of 1997-98, the region's economies expanded rapidly and outperformed many debt-laden developed countries in the West. As a result, some big bond issuers have been able to attain global status instead of an emerging market credit, helping them capture a broader base of investors overseas.
"The most noticeable shift we've seen in the past couple of years is Asian bond issuers' increased access to the US dollar bond market. Some investment grade issuers set benchmarks as global leaders instead of emerging market credits," said Thérèse Esperdy, a co-head of banking at JP Morgan's Asia-Pacific corporate and investment bank, referring to the likes of Samsung Electronics, Baidu and Want Want. These firms raised dollar bonds in the past 12 months at yields comparable to their global peers.
Battered by lingering concerns about the Fed tapering off its monetary easing, funds raised in Asia's debt capital markets denominated in the dollar, euro and Japanese yen - so-called G3 issuance - plunged to US$915 million last month. This is the lowest level since November 2008, when the collapse of US investment bank Lehman Brothers triggered panic as investors rushed to liquidate assets.
The hiccup in the bond market reflects across-the-board pessimism in the region and the growing attraction of US equities, even though sales of G3 bonds rose 17 per cent to US$94 billion in the first half, thanks to strong demand in the first quarter, according to data provider Dealogic.
"We all knew that the US Treasury yields have been at record lows and were going to rise eventually. The impact of that on Asian issuers is similar to that on issuers domiciled elsewhere - they must address the harsh new reality of a higher cost of borrowing," said Esperdy, who headed the US bank's top-ranked global debt capital markets before moving to Hong Kong last year.
On a more positive note, a broad-based rally in global markets at the end of last month followed a downward revision for first-quarter US economic growth, from 2.4 per cent to 1.8 per cent. Investors took heart from the revision as a sign that the winding down of US stimulus would be more gradual.