Asian dollar bonds ended the year on a quiet note with spreads consolidating at 19-month lows, after a solid 2009 in which the benchmark index gave investors a total return of over 25 percent. A continuing flow of upbeat economic data from the United States gave investors confidence that the year ahead would extend the spread-tightening rally, although the momentum was seen slowing.
The Asia ex-Japan iTraxx investment-grade index was stable at 93/97 basis points (bps), the lowest since mid-May 2008. Its high yield counterpart was quoted at around 415 bps, just off the near 2-year low of 410 bps struck earlier this month. HSBC's Asian Dollar Bond Index showed that the average spread of Asian credits tightened to around 267 bps from 700bp in end-2008, generating a total return of about 25.46 percent.
The Thomson Reuters Index of Asia emerging credit was quoted at 188.64 bps. It is about 8 bps wider in the last week of the year but down from a peak of 197 bps during the Dubai financial crisis in end-November. Emerging market credit spreads have collapsed in 2009 as an improvement in the global economic outlook and easing of a credit crunch in financial markets encouraged investors to buy riskier, higher-yielding assets.
The benchmark spread has contracted 73 percent in 2009, after having reached over 450 bps in March. It is sharply down from the peak of over 660 bps hit in October 2008 following the collapse of Wall Street titan Lehman Brothers. Primary markets also had a strong year with debt issues in Asia outside Japan in dollar-, euro- and yen-denominated offerings jumping to a record high of $63.25 billion in 2009 from last year's $25.9 billion, Thomson Reuters data showed.
The year ahead was likely to be busy with activity concentrated in the earlier part of 2010 as borrowers rush to take advantage of low interest rates. "I expect it to be a busy 2010 but we may not see as many one-off transactions such as Petronas and Hutchison Whampoa, which pushed the volumes up in 2009," said Sean Henderson, HSBC's head of debt syndicate.
"I guess we'll probably end up around $45-50 billion total volumes in 2010 assuming the markets remain stable," he said. The Philippines, Asia's most active sovereign issuer of global bonds, could be the first to tap the market in 2010 as Manila seeks to raise about $2 billion to cover its foreign borrowing requirements for 2010. They could be followed by Indonesia, Vietnam and Malaysia, all having made their intentions known about possible global bond sales.