Wed, Apr 04, 2018 - Page 12 News List

Asia US dollar bonds slow down after years of growth as concerns mount


It has been a rip-roaring ride for bond dealers in the market for Asian debt for the past several years, with record issuance coming so fast that some investors complained they did not get a proper chance to vet the securities.

Now the market is looking a little more earthly. As seen in fixed income around the world, sales came off the boil in the past two months as worries over short-term funding costs, trade tensions and the outlook for tech giants stoked volatility.

Trade wars in particular could hit Asia, with tit-for-tat US and Chinese tariff hikes disrupting the region’s supply chains and casting a cloud over growth and credit quality.

That is the top concern for investors in Asian bonds, who have turned underweight for the first time in three years, according to a survey by Bank of America Merrill Lynch.

It all means a new normal for the market after gung-ho sentiment last year propelled a record US$322 billion of issuance and carried over to the strongest-ever start to a year this year before sales slowed.

“Investors have been taking a more cautious approach,” said James Arnold, head of Asia-Pacific debt capital markets at Citigroup Inc in Hong Kong. “This has seen issuance dry up, but a part of this will be issuers readjusting to the new issuance spreads that investors are demanding, and as this equilibrium returns, then we would expect to see issuance return.”

US dollar bond sales from Asian institutions last month plunged 37 percent to US$23.3 billion from the same period last year, according to data compiled by Bloomberg.

The flip side is that some investors like the prospect of this becoming less of a sellers’ market.

“After the recent price moves we are starting to see pockets of value in credit,” said Jimond Wong, a senior portfolio manager at Manulife Asset Management (Hong Kong) Ltd (宏利資產管理香港).

Among investment-grade credit, he was cautious on weaker Chinese local government financing vehicles and regional governments, and said he expects a further correction in some property and industrial borrowers.

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