Asian Junk Bonds Offer Most Yield Over U.S. in Nearly a Decade

Asian junk bonds are attracting more bullish calls from money managers willing to navigate risks in the region for the juiciest yield pick-up over U.S. peers in nearly a decade.

The yield gap on speculative-grade dollar bonds from Asia over similar securities from U.S. borrowers has widened to about 295 basis points. That puts the premium closer to the 324 basis points touched in November that was the highest since 2011.

Asian Junk Bonds Offer Most Yield Over U.S. in Nearly a Decade

Strategists at UBS Group AG have said that junk debt from Asia is the best global credit opportunity in 2021. Analysts from Goldman Sachs Group Inc. have forecast that Asian high-yield notes may return 5.5% this year.

The U.S. bank has also said that a key focus will be on what role Chinese authorities play to help resolve debt issues in the real estate industry. Such issuers account for the single biggest source of high-yield dollar bonds in Asia.

That makes recent turbulence from the sector particularly important to manage. China’s regulators imposed caps on banks’ lending to the property companies for the first time from the start of this year, in their latest efforts to prevent systematic risks after a series of real estate curbs in recent years did little to damp buyer enthusiasm. One particular developer, China Fortune Land Development Co., has slid to distressed levels in a matter of weeks.

With the Federal Reserve indicating that it’s in no hurry to raise interest rates, and most economists forecasting it won’t do so before 2023, U.S. investors are aggressively chasing yield. Spreads on investment-grade U.S. corporate bonds fell to 91 basis points this week, the tightest since early 2018, and buyers are increasingly pushing into riskier debt.

JPMorgan Chase & Co. credit strategists led by Stephen Dulake wrote this month that a majority of clients they had discussions with in January held a positive outlook on U.S. high-yield notes and were willing to keep or add risk. Most investors don’t see the supply of such debt keeping up with demand, they wrote.

Asia

Junk notes from elsewhere in the region, though, have also attracted attention recently. Such securities from Indonesian issuers have rallied despite distress at the nation’s largest clothing makers, as a rebound in commodities and the economy buoy sentiment toward most local borrowers.

  • Read the latest Indonesia Credit wrap on that here
  • Prices for Asian high-yield bonds rose slightly on Tuesday, after losses the previous day, but sentiment remained weak, according to a credit trader
  • Credit-default swaps for SoftBank Group Corp., which has a speculative-grade credit score from S&P Global Ratings, tightened about 9.6 basis points, the most since Dec. 18, after it reported a record profit in its Vision Fund

U.S.

Kinder Morgan Inc. was among a handful of investment-grade companies bringing new deals Monday. Consensus for the week is $25 billion to $30 billion, with expectations that deal flow will be front-loaded.

  • The pace of U.S. inflation implied by the bond market has accelerated to the fastest since 2014, as crude oil prices rallied along with rising expectations for an economic recovery
  • Companies are tiptoeing back into the U.S floating-rate note market
  • For deal updates, click here for the New Issue Monitor
  • For more, click here for the Credit Daybook Americas

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