SINGAPORE: Asian issuance of bonds denominated in local currencies have ballooned to their largest in more than a decade as borrowers turn shy of expensive US dollar debt and tap cheaper, liquid markets at home.
A total of US$2.65 trillion (RM12.3 trillion) has been raised in Asia excluding Japan and Australia via 12,075 local currency bond issues by September, data from Refinitiv showed.
That reflects a roughly 10% increase in proceeds from a year earlier and the highest for the year-to-date period in over a decade.
Of this, 47.2% came from government issuers, at US$1.25 trillion (RM5.8 trillion) across 2,057 issues. This was followed by the financials sector, constituting 31.2%, or US$825.78bil (RM3.8 trillion), from 5,419 issuances.
“Local currency markets are more peculiarly insulated from what’s happening on the global front,” said Wong Kwok Kuan, managing director and regional head of debt markets at Maybank Investment Banking Group.
The Federal Reserve (Fed) has hiked interest rates by 300 basis points (bps) since the start of the year, taking the Fed funds target rate above 3%. The latest projections show that rate rising to 4.25%-4.5% by the end of 2022.
That frenetic pace of rate rises makes local currency bonds relatively cheaper to issue than dollar bonds, particularly as the dollar scales multi-year highs and weakens local currencies.
Meanwhile, rate hikes in Asia have generally been more subdued.
Bank Indonesia, for instance, only began hiking in August and has raised rates by a total of 75 bps. The Philippine central bank has increased rates by 225 bps since May and the Bank of Thailand has hiked by 25 bps twice, in August and September.
Andrew Lim, regional head of debt capital markets at Maybank Investment Banking Group, pointed to how the US dollar capital market had also “seen periods where it was shut given the macro volatility”, causing corporates to look onshore.
Indonesian company Mandiri Tunas Finance, which is majority-owned by Bank Mandiri, raised 376.615 billion rupiah (US$24.80mil or RM115mil) of five-year bonds at 6.75% in February. In August 2020, it paid 8.6% on five-year bonds.
Yields on the five-year US Treasuries have risen from about 0.4% in December 2020 to about 3.8% currently. Credit bonds are typically priced on spreads over sovereign bonds. — Reuters
