Asian Dollar Bond Demand Under Pressure Amid Record Supply

(Bloomberg) -- Sentiment in the Asian dollar bond market is getting weaker as record issuance weighs on investor appetite.

An imbalance is emerging between tepid market demand and strong supply, according to Anne Zhang, executive director for fixed income, currencies and commodities at JPMorgan Private Bank in Asia. Demand will probably continue to be muted in the following weeks as rising U.S. Treasury yields remain a key concern for investors, according to Zhang.

Sales in the Asian dollar bond market so far this year have climbed 25 percent to about $66 billion, exceeding last year’s record pace, even as a surge in underlying Treasury yields erodes gains. Spreads on investment-grade dollar notes from the region rose to their highest in five months on Wednesday, according to a Bloomberg Barclays index.

“We don’t anticipate a material sell-off in Asian fixed income markets in 2018. However, we do expect spreads to come under some pressure on account of slowing demand relative to the supply coming into the market,” said Karan Talwar, Hong Kong- based investment specialist for emerging-market debt at BNP Paribas Asset Management. “So even if demand remains relatively stable, increased supply can lead to some sell-off in spreads.”

State-owned China National Chemical Corp., know as ChemChina, priced $4.95 billion of dollar-denominated bonds on Wednesday, in one of the biggest Asian deals this year. Deutsche Bank said in a note Wednesday it was a bit surprised with the guidance being so wide off secondary levels, though it was understandable given the large size of the offering.

“It seems that investors are suffering some fatigue and are on the sidelines waiting for better direction on U.S. rates," said Charles Macgregor, head of emerging markets at Lucror Analytics Pte. in Singapore.

March 8, 2018, 08:10:46 GMT

By Carrie Hong, Lianting Tu and Narae Kim; Edited by Neha D'silva and Finbarr Flynn