Asia bonds lose US$155b as China woes add to rates pressure
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INVESTORS in Asian dollar debt have lost US$155 billion over the past 9 months, pummelled by weakness in China in addition the epic global selloff in fixed income seen around the world as interest rates rise.
A US$1 trillion benchmark of government and corporate notes has plummeted 12.1 per cent from its peak last July, according to a Bloomberg index. That’s the biggest-ever drawdown in the gauge based on data stretching back to 2009 and the latest example of pain in global fixed-income markets, after a gauge of euro high-grade notes last week recorded its worst peak-to-trough plunge on record.
The slump continued on Monday, with Asian investment-grade dollar credit spreads pushing out at least 5 basis points, on track for their biggest daily increase in about 2 weeks, a Bloomberg index shows.
The weakness comes as risk assets took a beating across the board. Authorities in Beijing, a city of more than 20 million people, raced to stop a Covid-19 outbreak, adding to concerns about a further slowdown in Chinese economic momentum. The offshore yuan fell to the lowest since April 2021.
“Some investors are wondering whether current levels represent attractive entry points” for Asian bonds, Goldman Sachs Group credit analysts Kenneth Ho and Chakki Ting wrote in note. “To us, macro uncertainties are likely to dominate. ”
Chinese high-yield dollar bonds dropped as much as 2 cents on the dollar on Monday, according to credit traders, following a second consecutive week of declines in a Bloomberg index.
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Bond markets have taken a beating around the world as investors price in a quicker pace of interest-rate hikes by the Federal Reserve, following comments by Chair Jerome Powell and other officials endorsing a 50 basis-point increase next month.
Investors turned overweight on Asia credit this month as concerns about outflows diminished, according to a recent report from Bank of America. That suggests the tide could be turning.
“I would argue that the short-end of investment-grade credit actually has started to look attractive, looking at where the yields are,” Neeraj Seth, head of Asia credit at BlackRock, told Bloomberg Television on Monday. BLOOMBERG
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