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Fears of more rate hikes spur US$8b bout of Asia issuance

Tan KW
Publish date: Thu, 08 Jun 2023, 10:24 PM
Tan KW
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Asian corporates raised US$8 billion from bond sales in the first seven days of June, the strongest start to a month since March as markets rethink the outlook for further US rate hikes.

The large majority of issuance came from banks, particularly from Australia, as concerns about a crisis for the financial sector recede. Tighter premiums have provided a window for borrowers especially as recent central-bank meetings have fuelled concerns that rate increases aren’t over yet. 

“Lack of new issuance at the beginning of the year have brought down spreads and now issuers are using this opportunity to tap the primary market,” said Andrew Wong, a credit analyst at Oversea-Chinese Banking Corp. “Growing convictions that rates may continue to go up might also encourage companies to lock in whatever’s available right now,” he said.

The surge in issuance is almost all from high-grade borrowers, which allow investors to get into a relatively safer asset class as financial markets seek to position for the possibility of recessions in some parts of the world. 

Yield premiums on the region’s investment-grade debt have dropped to their lowest in nearly three months, a Bloomberg index shows. They’re about 10 basis points tighter than their US peers, a rare event over the last decade, according to Bloomberg indexes.

Strategists at Morgan Stanley predict the tight valuations on Asian high-grade debt will last until early 2024.

Despite the strong start to the month, year to-date issuance is at the lowest in several years. The longer-term lack of primary supply “provides strong technical support for the secondary markets in Asia,” said Ting Meng, a senior Asia credit strategist at ANZ Group Holdings Ltd.


  - Bloomberg


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