Asian high-yield markets buzz with bond issuances amid the summer lull in the West

Primary bond markets started 2017 on an extremely strong tone, with momentum continuing during the year including throughout the summer.

The volume of bonds issued in Asia excluding Japan, denominated in dollars, euros and yen, totalled US$221 billion year-to-date, up 61 per cent from the same period in 2016, according to Dealogic. The high yield segment of issuances shone, with year-to-date volumes totalling US$48 billion, a threefold increase over the comparable period last year. As it stands, high yield issuance volumes have exceeded the full-year volumes in each of the last five years.

Asia’s markets continued to buzz while Western markets slowed during the summer. The threefold increase in Asian issuances trumped the 39 per cent growth in European high yields at US$75 billion and 11 per cent increase in American high yields at US$145 billion.

A confluence of factors contributed to this growth, including historically low interest rates and volatility levels, coupled with abundant investor demand and liquidity.

Data from Emerging Portfolio Fund Research shows that since May, flows into emerging market debt funds have remained positive for 10 out of the last 13 weeks. Additionally, credit spreads across many sectors, including EM Bond Indices, have tightened over the last 12 months, reflecting investor demand and optimism in the sector.

Regionally, Chinese issuers have contributed the bulk of high yield volumes with year-to-date volumes totalling US$38 billion and accounting for 80 per cent of Asia ex-Japan volumes, while South Asian and Southeast Asian issuers accounted for 11 per cent and 9 per cent respectively.

While the geographical mix in volumes remained relatively unchanged from 2016, we have seen noticeable shifts in the sector mix. Real estate borrowers have continued to tap the high yield markets, increasing their issuance from 29 per cent of 2016 total volume to 49 per cent this year. This was led largely by jumbo deals from the likes of Kaisa Group and China Evergrande’s US$6.3 billion issuances.