China Dollar Bond Euphoria Seen Waning Amid Virus Jitters
China Dollar Bond Euphoria Seen Waning Amid Virus Jitters
(Bloomberg) -- The sizzling start to the year for Chinese company dollar bond sales risks fading as the coronavirus epidemic darkens investor mood.
Bond offerings have totaled about $27 billion so far this month, the busiest pace in January ever even before the Lunar New Year holiday, which is now extended to Feb. 2 in the mainland. With risks building up amid a rout in credit markets, Aberdeen Standard Investments sees issuance waning.
“We expect to see a reduction in new issuance, in particular Chinese corporate issuance, until markets stabilize and the economic impacts of the virus are better understood,” said Paul Lukaszewski, head of corporate debt for Asia and Australia at Aberdeen Standard.
The dimming prospects come as global markets struggle to weigh the economic blow from the virus amid the mounting death toll. Asia high-grade dollar bond spreads widened Wednesday to reach a seven-week high, according to a Bloomberg Barclays index. Macau casino bonds and Chinese property developer notes were among the hardest hit in the broader market sell-off.
The spread of the viral infection and renewed tensions in the Middle East have become the key risks to sovereign ratings in the Asia Pacific region, overshadowing U.S.-China trade war concerns, according to S&P Global Ratings in a report Thursday.
“It seems likely that the disease will spread further before it is contained. Apart from the risk to human lives, it is likely to hit travel and consumption activities,” S&P said in the note. “In a scenario of widespread infection, it could materially weaken economic growth and fiscal positions of governments in Asia.”
To be sure, some better quality names may still make it to the market. “We would not be surprised to see established investment grade issuers do opportunistic drive-by issuance to capitalize on the lower borrowing costs available to them,” Aberdeen’s Lukaszewski added.
--With assistance from Rebecca Choong Wilkins.
To contact the reporter on this story: Annie Lee in Hong Kong at olee42@bloomberg.net
To contact the editors responsible for this story: Chan Tien Hin at thchan@bloomberg.net, Finbarr Flynn
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