BlackRock Inc said low yields on US dollar bonds, already hovering at levels unseen in about a decade in Asia, are set to persist.
“With 30 percent of the world government bonds in negative territory and 70 percent of world government bonds yielding less than 1 percent due to the extended period of global monetary easing, we are in a new investment paradigm of yields being lower for longer,” said Neeraj Seth, Singapore-based head of Asian credit at BlackRock.
The extra yield over US Treasuries that investors demand to hold US currency notes from corporate issuers in Asia has this month slid 26 basis points to 199, the lowest since 2007, according to a Bank of America Merrill Lynch index.
Investors are looking for clues from central bankers on the timing of potential interest rate hikes, with US Federal Reserve Chair Janet Yellen on Friday to speak at an annual symposium in Wyoming.
Fed Vice Chairman Stanley Fischer on Sunday signaled that a rate hike this year is still under consideration. Even if it raises rates, other central banks could remain accommodative.
The tightened spreads are worrying some investors.
“It’s a concern that investors are now buying Asia dollar bonds at low yields, even though fundamentals haven’t improved much,” said Clement Chong, senior credit analyst at NN Investment Partners.
He expects the technical backdrop to remain supportive of Asian high-yield notes, but that onshore defaults in China could force companies to tap the dollar bond market.
Ken Hu (胡嘉林), chief investment officer of fixed income at Invesco Hong Kong Ltd (景順投資), said that corporate bond purchases by the European Central Bank and the Bank of England, as well as “likely additional quantitative easing” by the Bank of Japan, have been driving demand for Asian dollar bonds.
Twenty-two of 33 people said in a Bloomberg survey conducted from Aug. 1 to Aug. 4 that a policy review to be conducted at the Bank of Japan’s meeting next month makes an expansion of stimulus more likely.
Negative yielding bonds are the “new norm” and therefore investors are looking to invest in Asia dollar bonds, despite their tight valuations, said Annisa Lee, head of Asia ex-Japan flow credit analysis at Nomura Holdings Inc.
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