HONG KONG – Asian based futures markets have been going against expectations and have been stable in the global bond market sales medium over the past few weeks.
The sector has often felt worse when global sentiment has turned against fixed income investment. But the yield price the region offers over its developed market peers, healthier corporate and government balance sheets and a growing local investor base means its attractiveness is long overdue. time remains intact, investors and analysts said.
The rise in long-term bond yields in developed markets is reminiscent of what happened when the pandemic of coronavirus spread worldwide or during the “taper tantrum” in 2013 when it appeared The U.S. Federal Reserve said they were considering cutting asset purchases, giving them bad finances in market volatility.
At the time, that was building emerging markets including India and Indonesia, named by Morgan Stanley along with Brazil, Turkey and South Africa as “five fragile economies ”because of their reliance on foreign capital.
However, this time, the issuance of both Asian government and corporate bonds over the U.S. Treasury has been relatively stable and the sector remains a net importer of capital this year.
“Investors should remain focused on emerging Asia-based incomes with attractive yields against U.S. Treasury bonds,” said Sean Taylor, chief investment officer for Asia Pacific at Manager DWS Group Fund in Hong Kong. He favors emerging market and credit rates, particularly from Asia, as trade uncertainty is easing under the new US president, Joseph Biden.
Emerging Asia is expected to benefit from global recovery, low interest rates and central banks sitting on an abundance of reserves.
Chinese 10-year government bonds yield about 175 basis points more than the US equivalent, while high-yield or junk bonds offer a base price of 250 bases.
Asian emerging market high yield bonds offer a 6.68% spread over Finance, according to the Bank of America’s high Asian market index. That compared to 330 points for U.S. junk bonds.
Foreign investors have been net buyers of Asian bonds this year. They acquired $ 23.1 billion in February, bringing the majority for the first two months of the year to more than $ 50 billion. Investment in Chinese bonds put the books down.
The Bloomberg Barclays Global Index added Chinese government bonds to their benchmarks in 2019, followed by JPMorgan Global Aggregate Bond Index last year. The introduction of two of three major index collectors, which track trillions of dollars in assets, has spurred buying by global investors.
Foreign investors have bought $ 41.5 billion of Chinese bonds since the beginning of the year, nearly a third of all purchases in all of 2020, with an inflow of $ 15 billion in February when futures markets began fixed-income is coming to a close, data from China Bond showed.
While India and Indonesia saw an outflow, analysts said the volumes were low compared to previous sales and both countries do not see a spike in output or the weakening of the frontier currency, as before.
“One of the main reasons for their stability is that the level of dollar liquidity with local investors has been increasing,” said Avinash Thakur, head of debt origination for Asia Pacific at Barclays. “More and more contracts are happening with local liquidity so the need for capital flights away from Asia is also decreasing.”
More than half of the $ 420 billion in dollar bonds issued by ex-Japan Asian Pacific companies and governments were lent to local investors, according to data compiled by Refinitiv. These offerings were made under the legal status of Security and Exchange Commission Rule S, which governs releases to non-U.S. investors outside the country. So far this year 46% of the $ 106 billion money has been made in such offers, compared to just 14% in 2010.
Such an investor base playing a role in Asian bond markets was experiencing an increase in 10-year US benchmark yields, which went above 1.60% for the first time in a year. The spike in yield, which shifts abruptly to bond prices, asset classes roiled, with stocks slipping and debt sales struggling for buyers or put off.
Bond reproduction comes from a better outlook for U.S. economic growth, as vaccines against COVID-19 pick up pace, and President Biden agrees to a $ 1.9 trillion fiscal stimulus package, which has stopped the expectations of inflation.
“There is a strong debate over whether the spike in inflation is a long-term surprise,” said Thomas Poullaouec, head of multi-asset solutions for Asia Pacific at asset manager T. Rowe Price. “Unless the rise in output is largely driven by inflation, the answer is to choose more defensive markets within Asian bands such as China and South Korea. However, if inflation Bonds from commodity producers such as Indonesia and Malaysia would benefit. “
Frederic Neumann, co-head of Asian economics at HSBC in Hong Kong, said: “Inflation on the market may be a temporary concern as the US economy reopens, giving rise to depressed sectors such as tourism and recreation.This is not a long-term rise.-term inflation [which] driven by salary pressures. “
But the growing fortunes of the U.S. economy and the rising numbers of long-term Federal Reserve rates are pushing investors to recover from holding long-term bonds. time to shorten their debt profile, he said.
Once that flows through, stability should return, which should further support Asian bonds, as the image of growth and the highest levels of foreign exchange reserves are maintained by countries such as the India and Indonesia, Neumann said.
India’s foreign exchange reserves, which are used by central banks to replenish liabilities and influence monetary policy, are nearly $ 600 billion. Indonesia exceeds $ 130 billion.
The stability of Asian bond markets this time is evident from the way production has shifted. Since the beginning of February, emerging Asian bond markets have climbed high yield bond yields by just 50 basis points compared to a 7.5% to 16% increase in March last year in COVID-inspired average sales 19, and 300 basis points in 2013.
The yield on Chinese government bonds has barely shifted, and the 10-year Indian and Indonesian paper has gone up.
Fifteen emerging Asia-Pacific economies, including China, India, Indonesia and Vietnam, are seen as powering global growth in 2021 with full output domestic expands 8.2% in 2021 and 6% next year, according to the International Monetary Fund.
The fund estimates that advanced economies in the region – Australia, New Zealand, Hong Kong, Singapore, South Korea and Taiwan – will grow by 3.7% this year and 2.7% in 2022.