Asia high-yield corporate dollar bonds are paying investors a record 29.5 per cent return this year, more than double US junk debt, on bets the region's economies will emerge from recession first.
US speculative-grade bonds returned 12 per cent since January 1, while European securities gave investors a 15.3 per cent profit, according to Merrill Lynch data. Asian junk bonds lost 4 per cent in the same period last year, the data show.
"The high-yield bond performance shows that things are getting better, and I think Asia is going to continue to rally," said Tim Condon, head of Asia credit research at ING Groep in Singapore. "There are more clouds about the US than over Asia, where there's more confidence economies are going to bounce back more quickly."
Prices for Asian junk bonds, or securities rated below Baa3 by Moody's Investors Service or BBB- by Standard & Poor's, plunged after Lehman Brother Holdings' September collapse spurred investors to sell all but the safest assets. This year China may be a 'bright spot' in the global economy, leading Asian neighbours into the initial stages of recovery, World Bank said in an April 7 report.
The extra yield investors demand to own Asia's corporate junk bonds rather than US Treasuries was last at 17.85 percentage points, compared with 17.45 percentage points for US speculative-grade debt and 21.03 percentage points for European junk bonds, according to Merrill Lynch indexes.
"The Asian high yield market has dumbfounded many by turning from a forgotten market to star performer in a short time," Viktor Hjort, a credit analyst at Morgan Stanley in Hong Kong, wrote in a note to clients on Monday. "What's equally noticeable is how broad-based the rally has become. In the past month, nine out of every ten bonds have moved in the same direction every day."
Agile Property Holdings' $400 million of 9 per cent bonds due in 2013 surged 30 cents from 56 cents on the dollar since March 12, according to ING prices. Moody's ranks the Hong Kong-listed developer Ba3, its third-highest non-investment grade rating.
Citic Resources Holdings' $1 billion of 6.75 per cent notes due 2014 jumped 13 cents to 83 cents on the dollar since March 3, Royal Bank of Scotland Group prices show. The Chinese metals and oil supplier is rated Ba3 by Moody's and one level higher at S&P.
Risk appetite
Asia "hasn't been hit quite so hard in the financial sector as the rest of the world, and that makes a big difference through liquidity and demand for risk products," said Gary Jenkins, a strategist at Evolution Securities in London. "In the US you have a financial sector that's as close to being bankrupt as you¿re ever going to get, and the same is true from a liquidity point of view for most of Europe and the UK."
Asian financial companies had $36 billion of writedowns and losses since the start of the credit crisis in 2007, according to data compiled by Bloomberg. That compares with $906 billion at US banks and $380 billion in Europe, the data show.
