Asia bank bonds so far avoided scale of stress in US, Europe

SPREADS on Asian bank bonds widened less last week than those of lenders in other parts of the world, with analysts pointing to factors such as less hawkish central banks and stickier deposits as reasons to favour the notes.

Yield premiums on riskier dollar bonds that count as capital for banks in Singapore, Australia, Japan and China each widened on average less than 42 basis points last week, compared with more than 100 basis-point increases for similar notes from the US, Germany, France and Italy. Concerns about the financial health of Credit Suisse Group caused yield premiums on its notes to surge by more than 2,700 basis points on average.

That makes the region a relative haven of stability amid global market turmoil, which erupted following the collapse of a bank in California and intensified as worries about Credit Suisse mounted. For Asia, analysts at S&P Global Ratings, Fitch Ratings and DBS Group Holdings pointed to factors such as stickier deposits, less policy tightening and the prospect of state support in the event of a crisis.

“We do feel the banking systems in Asia, and certainly for the economies where were are invested in corporates, will remain very healthy” such as Thailand and Singapore, said Sheldon Chan, a portfolio manager for Asia credit at T Rowe Price Group. “At the same time, we need to be mindful of where global credit and developed-market credit spreads go,” given their knock-on effect for Asian dollar notes, he said.    

While Asian bank bonds have outperformed relative to peers recently, that doesn’t make the region’s lenders immune to second-round effects. Pershing Square’s Bill Ackman said via Twitter he was concerned about “out of control” financial contagion risks.

“It’s an evolving situation and events like this have tremors,” Omar Slim, co-head of Asia ex-Japan fixed income at PineBridge Investments, said. “I am not exactly rushing out to buy bank paper at this point.” BLOOMBERG