Credit markets keep reeling despite ECB boost

  • Markets
  • Friday, 20 Mar 2020

“Liquidity in the credit market has frozen up, ” said Clement Chong, head of research at NN Investment Partners.

FRANKFURT: The worst rout in credit since the global financial crisis deepened in Asia despite the European Central Bank launching massive extra emergency stimulus and a cut in rates by its Australian counterpart.

In a sign of the daunting challenges authorities face as the coronavirus pandemic fuels a stunning surge in financing costs, spreads on even the safest corporate bonds in dollars in Asia blew out the most in seven years. The price of insuring against default in the region jumped to the highest since 2016.

“Liquidity in the credit market has frozen up, ” said Clement Chong, head of research at NN Investment Partners. “The focus now should be on liquidity of issuers given the level of economic activities that have come to a standstill.”

Policy makers are trying to prevent a chain reaction of defaults, as the pandemic prompts unprecedented lockdowns and supply chain disruption. The ECB announced an asset purchase program to buy securities, worth 750 billion euros (US$820bil) while the Reserve Bank of Australia added steps to help businesses. South Korea boosted support for small companies, and and will create bond and stock market stabilization funds. India’s central bank stands ready to take more steps to contain yields.

The pandemic brought more grim headlines, with Europe surpassing China in the number of confirmed cases and deaths from the disease.

Some investors don’t see confidence returning to credit markets until there are signs of stabilization in the outbreak outside China.

Primary issuance markets around the world are grinding to a halt, limiting access to cash when strained companies need it most.

Chinese property developers, the biggest junk bond issuers in Asia, are at growing risk of default as the crisis squeezes funding channels, according to PricewaterhouseCoopers.

Asia investment-grade dollar bond spreads were about 20 basis points wider on Thursday morning, according to traders.

That put them on course for the worst-blow out since 2013, according to a Bloomberg Barclays Index. Beijing Capital Airlines said trading of two of its assets-backed securities has been suspended from Thursday as ticket revenues have been hurt by the pandemic.

The Markit iTraxx Asia ex-Japan index of credit-default swaps was indicated about 10 basis points wider, and the Markit iTraxx Australia 20 basis points out earlier, according to trader.

Yields on Indian local currency corporate bonds were indicated higher yesterday and the rupee weakened to a record low against the dollar despite central bank measures there on Wednesday to add liquidity. — Bloomberg

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