UOB planning sale of US$-denominated bonds

UNITED Overseas Bank is planning a sale of dollar-denominated bonds as Asia's investment-grade issuers pay the least for debt in the US currency in almost three years.

UOB, which is rated AA- by Standard & Poor's, the company's fourth-highest grade, hired banks for an offering of subordinated notes, a person familiar with the matter said yesterday, asking not to be identified because the terms aren't set. Yield premiums on securities graded the equivalent of BBB- or higher by S&P slid to 190.5 basis points last week, the lowest since April 2011, according to JPMorgan Chase & Co indices. Investment-grade borrowers pay 41.5 basis points more than Treasuries for dollar notes globally, Bloomberg indices show.

HSBC Holdings was the last high-grade Asian issuer to sell dollar-denominated bonds, pricing US$300 million of floating-rate notes on March 7. The region's banks have sold US$8.38 billion of debt this year, 26 per cent of total dollar issuance, data compiled by Bloomberg show. South Korea's Shinhan Bank, rated A by S&P, is considering a transaction as it plans to meet investors in Asia, Europe and the US from Thursday, a separate person said yesterday.

"Asia still offers a considerable spread pick-up compared to US investment-grade names," said Mark Reade, a Hong Kong-based desk analyst at Mizuho Securities Asia. "Strong demand from global investors, minimal supply from Asian investment-grade issuers and last week's rise in Treasury yields, which meant investors focused on total return were satisfied with lower credit spreads, are driving spreads tighter."

Yields on 10-year US government debt rose 14 basis points last week, the most since September, to 2.79 per cent.

Bonds sold by BBB rated Chinese developers outperformed Asian investment-grade debt last week, with spreads tightening about 20 basis points, Goldman Sachs Group said in a note dated March 8. Spreads on top-rated bonds sold by Indian issuers contracted about five basis points, analysts led by Hong Kong-based Kenneth Ho wrote.

The cost of insuring Asian corporate and sovereign bonds from default rose from the lowest level in more than two months yesterday, according to traders of credit-default swaps.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan added two basis points to 127 basis points as at 8.31am in Hong Kong, Westpac Banking prices show. The gauge is set for its first day of increases in a week, according to CMA, which is owned by McGraw-Hill Cos and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Australia index gained one basis point to 102.5 basis points as at 11.22am in Sydney, according to National Australia Bank. The benchmark is on course for its highest close in a week, according to data provider CMA.

The Markit iTraxx Japan index was little changed at 75.5 as at 9.24am in Tokyo, Citigroup prices show. The measure has fallen 1.2 basis points this month, according to CMA.

Credit-default swap indices are benchmarks for protecting 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. - Bloomberg