ASIA’S dollar bond sales are set to end 2018 with a whimper after a sizzling start. Next year’s prospects may prove dimmer, bankers and investors say.
Volatile emerging markets, trade wars and now surging US Treasury yields have created a perfect storm that’s battering sentiment across Asia. A Bloomberg survey expects primary issuance to slump as much as 46% in the fourth quarter and Credit Suisse Group AG expects more turbulence going into 2019 that will test borrowers’ mettle.
“Next year is likely to remain challenging for corporates that do not have strong credit metrics,” said Terence Chia, head of Asia Pacific debt capital markets syndicate at Credit Suisse in Hong Kong. “A market turnaround in the near term is unlikely and we expect issuance of bonds from lower rated corporate credits will continue to decline in 2019.”
The issuance drop “would potentially be realized across all regions, sectors and credit buckets,” said Bryan Carter, London-based head of emerging-markets debt at BNP Paribas Asset Management Ltd. “Overall, we view the decrease in supply as net positive. We continue to see volatility across EM markets on the back of political uncertainties, growth concerns and reduction in capital flows into EM.”
Dollar-denominated bond sales in Asia excluding Japan will probably hit $50 billion to $65 billion this quarter, compared with the year-earlier period of $93.4 billion, according to 11 out of 22 bankers and analysts surveyed by Bloomberg.
Some are expecting market sentiment to continue weakening in 2019, especially for high-yield credits, the survey showed.
So far this year, dollar bond issuance has tumbled 14% from a year earlier to $199 billion. JPMorgan Chase & Co. last month cut its new supply forecast for the year to $233 billion from $245 billion.
The softer market tone and jump in US Treasury yields have made investors cautious and could delay some of the supply coming to market, according to Lorna Greene, a director of debt syndicate and origination for Asia at National Australia Bank Ltd.
“Furthermore, the volatile market backdrop may see some of these issuers change focus to the EUR market,” Greene said on Friday.
Given the current market conditions, investors are not eager to go further down the credit spectrum just for a few more basis points, said Credit Suisse’s Chia.
“Against the current market backdrop, investors have a preference for high quality credits in non-cyclical sectors and transactions with transparent execution and pricing,” he said. “As a result, Asian issuers will have to be flexible and nimble in order to opportunistically tap the market as and when there are windows, which are likely to be short-lived.” — Bloomberg