HONG KONG, June 28: Asian bond issuance has been brought to a spectacular halt by worries the U.S. Federal Reserve will soon start reeling in economic stimulus and fears that China’s cash squeeze could spiral into a financial collapse.
But hopes are building that calm will return soon and bond supply will resume, as U.S. Treasuries are showing signs of stability and outflows from emerging debt have been less staggering than earlier feared.
This week’s postponement of a bond offering by Pacnet and hesitancy on the part of a bunch of other borrowers to launch even after completing investor meetings reflect concerns about market volatility and fund redemption pressures.
In China, a surge in money market rates to historic highs and a stock market slide forced China Development Bank to cancel a 20 billion yuan ($3.25 billion) bond deal while other regional deals were put on hold after the Fed said it may slow its stimulus programme later this year.
‘The end of QE has been talked about since last year, so this halt is expected and should be a temporary one. We are ahead of last year in volume terms so that should give us a cushion, and I see the 2013 tally likely to come close to or match last year’s,’ said Clifford Lee, head of fixed income at DBS.
Meanwhile, a string of calming remarks from Fed officials have helped stabilise U.S. Treasuries, while a lack of large scale redemptions are also stoking hopes of a revival in debt capital markets in coming weeks.
‘At worst the market will remain shut until August but we are hopeful that it may reopen in 1-2 week’s time should rates continue to stabilise,’ said Lee.
The deal pipeline was flowing at a breakneck speed in the first five months, boosting issuance to $88 billion, well ahead of last year’s corresponding figure of $71 billion.
Issuance struck an all-time high of $133.8 billion in 2012.
TAPER TANTRUMS
But since U.S. Interest rate jitters set in and investors began worrying about the winding down of quantitative easing, the appetite for Asian bonds has soured.
This month there was just one deal in the G3 bond market in Asia ex-Japan, by Huaneng Group, and that needed a lot of assistance from relationship banks and onshore investors who helped the state-run borrower across the finish line.
Other borrowers with bond issuance plans have turned watchful after completing investor presentations.
Lenovo Group, Hilong Holding, Kookmin Bank, Maoye International, Poly Real Estate are some of those that are yet to launch after mandating or roadshows.
Still, primary markets are unlikely to regain the momentum witnessed at the start of the year, with first-half volumes 18 percent ahead of last year.
Besides, corporate borrowers in urgent need have completed their refinancing exercises.
‘The pressure on Asian balance sheets (from a refinancing standpoint) is not great and supply will be low in the second half,’ said Kaushik Rudra, strategist with Standard Chartered Bank.
‘However, we are unlikely to see either long-dated issuance or the return of the aggressive structures we saw in the first half. It is likely to be high grade, benchmark and household names.’
(agencies)
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