Booming Asian issuance of US dollar-denominated debt is likely to reach its climax next year, with an anticipated increase in interest rates by the Federal Reserve finally calling time on a record-breaking run for bond markets. Asian companies outside Japan raised US$155.2 billion in the dollar bond market in the first 11 months of the year, up 28 per cent from a year earlier and already a record for any single year, said data provider Dealogic. "The year after next year should be difficult if the Federal Reserve begins to raise rates," said Andrew Milligan, the head of global strategy at British-based Standard Life Investments. A shift in the Fed's zero-rate monetary policy settings will change conditions for investors globally. Rising expectations of an increase by mid-2015 since July have already lifted the dollar to its highest in four years against a basket of major currencies. That erodes some of the appeal to Asian firms of issuing in a weak foreign currency at record-low interest rates as they are likely to have to pay back more in their own currency. Investors, meanwhile, can begin to look forward to earning a risk-free rate above zero for the first time in almost seven years, a phenomenon that many analysts believe will see a huge withdrawal of capital from relatively risky emerging markets in favour of safe-haven US assets. Falling crude prices are an added complication for Asian issuers as oil companies have been among the most active issuers of dollar bonds in the region since 2008. Crude prices have plummeted about 35 per cent since June to trade below US$70 a barrel and the Hong Kong-traded shares of CNOOC, PetroChina and Sinopec Corp have dropped more than 25 per cent since September. "Investors will have to be very selective in what to buy and some companies will be in trouble as a result of rising interest rates and failing oil prices," Milligan said. Investors were nervous about next year after a big tailwind for US treasuries, said Tim Condon, an economist at ING Asia. All that said, the scale of the shift is likely to be gradual. Sean Chang, the head of Asian debt at Baring Asset Management, expects the Fed to raise rates by 50 basis points in two moves next year, bringing them to 75 basis points. While that is below Bloomberg's consensus estimate of 95 basis points, that remains a fraction of the 4.5 per cent median Fed funds target rate since 1990. "The low-yield environment will continue to set most of the trends for next year," said Mark Follett, the head of high-grade debt capital markets for Asia, excluding Japan, at JP Morgan. "Investors are being starved of yield so higher-margin products will be a feature." Follett said he expected total issuance in Group of Three currencies - dollars, euros and yen - from the region to remain at about US$200 billion next year. Dilip Shahani, the head of global research for Asia-Pacific at HSBC, thinks demand for high-quality corporate bonds will dominate in 2015, given the backdrop of the shifting interest rates. "There's been an increase in issuance from China this year and global investors' appetite remains stronger for high-grade Asian issuers than for high-yield names," Shahani said. Investors accept lower returns from investment-grade or so-called high-grade bonds as the premium they pay for quality. Companies issuing high-yield, or speculative-grade, bonds are those that typically have a higher risk of failing to repay their debts. Rising US interest rates and the uncertainty surrounding the global economy are the major risk factors that could impair a company's ability to meet financial obligations. Industrial and commodity issuers remained most vulnerable to an economic slowdown as they were far more sensitive to the business cycle, HSBC said. Despite the risks, bankers and fund managers said investor appetite for yield in what would remain a world of extremely low interest rates would support Asian debt issuance next year. They said yield-hungry investors in Asia - mostly regional insurers and money managers - were looking to buy more long-dated assets that paid higher returns but that were more sensitive to interest rate movements.