(Bloomberg) -- This year’s selloff in Asian dollar bonds has made their valuations more attractive but they are not yet cheap enough for investors to consider buying the dip, according to Goldman Sachs Group Inc.
The average spread on regional dollar bonds has risen 29 basis points so far this year to 202 basis points Friday, the highest since July, according to ICE BofAML indexes. However, the premium has been wider 85 percent of the time going back to January 2010, indicating it’s not particularly cheap relative to recent history, according to a note Friday from Goldman strategists including Kenneth Ho.
“Whilst Asia credit spreads have widened, they are still at relatively tight levels,” the analysts wrote. “We would like to see the U.S. Treasury yield stabilize at a higher level before we consider buying the dip,” they said.
Hurt by surging supply and slowing demand, Asian dollar bonds suffered the worst first-quarter losses since data going back to 1997, ICE BofAML indexes show. Goldman Sachs expects sentiment to stay challenged in the short-term, triggered by technical factors including a strengthening dollar, rising Treasury yields and Libor, as well as higher currency hedge costs.
“We do not think the macro conditions will lead to a bear market in Asia credit,” the strategists wrote. “Nonetheless, we think near-term sentiment will remain challenging and we see no need at the current juncture to alter our preference for short-term carry.”
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