The extra yield investors demand to own Asian speculative-grade corporate bonds instead of government debt may increase by as much as 1 percentage point amid a surge in new issues, according to Nomura Holdings Inc.
Economic uncertainty and a bond sales pipeline of up to $10 billion pose “a risk to secondary spreads,” analysts led by Hong Kong-based Pradeep Mohinani said in their November outlook dated yesterday. “We are advocating a more cautious stance.”
PT Chandra Asri, Agile Property Holdings and PT Bumi Resources are among high-yield Asian companies planning dollar bond sales. High-yield debt, also known as junk or speculative-grade, is rated below BBB- at Standard & Poor’s and Baa3 at Moody’s Investors Service.
High-yield Asian companies outside Japan sold $11.5 billion of bonds this year compared with $4.1 billion in all of 2008, according to Nomura.
The region’s dollar junk bonds returned 74 per cent since the start of January as credit markets recovered from the collapse of Lehman Brother Holdings Inc., Merrill Lynch & Co index data show.
The extra yield over similar-maturity US Treasuries that investors demand to own Asian high-yield dollar corporate bonds widened 6 basis points to 887 basis points yesterday, according to a JPMorgan Chase & Co index.
Including high-yield sovereign debt, spreads have widened 50 basis points since October 15, JPMorgan data show.
The risk of a “double-dip recession” as central banks exit quantitative easing measures may also help push spreads wider, the Japanese bank’s analysts said. “The implications will almost certainly result in wider spreads as projections of falling default rates through 2010 will need to be revised upwards,” they wrote.
There’s a 60 per cent chance Asian high-yield spreads will widen by as much as 100 basis points and a 10 per cent probability of an even larger increase, they said. There’s a 30 per cent chance of spreads narrowing, they said.
