Merrill Lynch says an increasing number of United States-based fund managers are seeking out bonds issued by blue-chip corporates in Asia in a bid to enhance returns on their portfolios as the likelihood of a global deflationary spiral increases. Managing director for fixed income research Chris Francis said once the global deflationary spiral began, funds would rush into US Treasuries to take advantage of the higher level of safety offered, pushing down yields. He said US-based emerging market fund managers were increasingly cautious of diverting their assets into Latin American credits, which had been a traditional high-yield haven for them during economic downturns. Their caution largely stemmed from the Russian financial crisis, which was gradually spreading among emerging markets in Eastern Europe and Latin America. Mr Francis said US-based managers not familiar with the names of blue-chip debt issuers in Asia were beginning to look into the region seeking high returns of 10 to 15 per cent a year. He said this level of return would attract the interest not only of traditional fixed income managers but also equity portfolio managers. Merrill Lynch (Asia Pacific) managing director Samuel Poon, however, said fund managers' renewed interest in Asia did not necessarily signal that companies could begin thinking of making new issues again. He said some investors were wary after having their hopes of a recovery in April dashed by deepening debt crises in Korea and Indonesia.