Bloomberg News

Asian Dollar Debt Sales Slow, Bond Risk Rises on Draghi Inaction

August 03, 2012

Dollar-denominated debt offerings in the Asia-Pacific region slowed this week as European and U.S. central banks failed to announce immediate measures to boost global growth. Bond risk rose.

Sales declined 60 percent this week to $2.15 billion with no issuance after the first two days, according to data compiled by Bloomberg. A gauge of bond insurance costs in Asia is set to close at the highest level since July 27, Royal Bank of Scotland Group Plc prices show.

European Central Bank President Mario Draghi and the U.S. Federal Reserve this week failed to announce new easing measures to support global economic expansion, which strategists forecast will dwindle this year to the slowest pace since 2009. Asian exporting nations from China to South Korea are being buffeted by Europe’s sovereign debt crisis, with data this week showing manufacturing and offshore shipments slowing.

“The ECB built the market up for a big resounding bazooka- type outcome but that didn’t come true,” said Brayan Lai, a Singapore-based desk analyst in emerging market credit trading at Jefferies Group Inc. “There could be some issuers that try to access the market on an opportunistic basis in August but a material pick-up in activity will probably wait until September.”

Bond Risk

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan advanced 4 basis points to 163 basis points as of 1:26 p.m. in Hong Kong, RBS prices show. The gauge is on track for its highest close since July 27, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Draghi said last month that the ECB would do whatever is needed to protect the euro, interpreted by many as a sign that the central bank would intervene in debt markets. Spanish and Italian government bonds slumped as Draghi steered clear of spelling out the full details of his plan.

U.S. central bankers led by Ben S. Bernanke concluded their two-day meeting this week saying they “will provide additional accommodation as needed” to bolster the expansion.

The Markit iTraxx Australia index surged 8 basis points to 173 as of 3:40 p.m. in Sydney, Westpac Banking Corp. (WBC) prices show. The measure is set for its highest close since July 27, according to data provider CMA.

The Markit iTraxx Japan index rose 11 to 196 as of 2:40 p.m. in Tokyo, Citigroup Inc. prices show. The benchmark is on track for its highest close since June 6, CMA prices show.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

To contact Bloomberg News staff for this story: Rachel Evans in Hong Kong at revans43@bloomberg.net Henry Sanderson in Beijing at hsanderson@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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