Shutdown in U.S. sinks sales of dollar bonds

Sales of dollar-denominated bonds in the Asia-Pacific region dropped to the lowest in nearly four months this week as borrowers suspended plans while the U.S. government worked to avert a debt default.

Korea Exchange Bank, part of the nation’s third-largest banking group, is the only company to have sold notes in the U.S. currency since Oct. 13, raising $200 million via 10-year 4.625 percent securities Thursday, according to data. That’s the least since the week ending July 7 when just $100 million of bonds were sold. PT Modernland Realty is marketing some $200 million of three-year notes to yield about 11 percent, a person familiar with the matter said.

BlackRock, the world’s biggest money manager, and Pacific Investment Management, manager of the world’s biggest bond fund, say the Federal Reserve will postpone tapering its bond purchases as a result of the debt-ceiling debate. Yield premiums for dollar notes in the region outside Japan narrowed to a one-month low of 287 basis points yesterday, JPMorgan Chase & Co. indexes show, after lawmakers voted to pass legislation ending 16-day government shutdown.

“Now that tapering will probably be delayed to next year, I’m expecting a lot of borrowers to start rushing out with deals,” said Annisa Lee, a Hong Kong-based credit analyst at Nomura Holdings. “It makes sense for borrowers to come now since markets have stabilized.”

Haitong Securities, a broker and dealer based in Shanghai, and SK Broadband, a Korean Internet-service provider, are considering selling debentures in the U.S. currency, other people familiar with those matters said.

The Fed “may now have no choice but to stay longer in its intense policy experimental mode - due both to the likelihood of weaker data and to a perceived need to take out insurance for the economy against future political dysfunction,” Pimco Chief Executive Officer Mohamed El-Erian said in a CNBC blog posting on Oct. 16.

Standard & Poor’s estimated the shutdown shaved at least 0.6 percent off fourth-quarter gross domestic product, or taken the equivalent of $24 billion out of the economy. The world’s largest economy will expand 1.6 percent this year, according to economists surveyed, the worst since a contraction in 2009.

Haitong on Thursday hired banks to help arrange fixed-income investor meetings in Asia and London while SK Broadband hired banks to arrange bond investor meetings earlier this month.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 132 basis points as of 8:50 a.m. in Singapore, Australia & New Zealand Banking Group prices show. The gauge is on track for a 24.4 basis- point drop this month, the most since June 2012, according to data provider CMA.

The Markit iTraxx Japan index fell 1.5 basis points to 85 basis points as of 9 a.m. in Tokyo, according to Citigroup prices. The measure is headed for its eighth consecutive decline, the longest falling streak since March 12, according to CMA, which is owned by McGraw-Hill and compiles prices quoted by dealers in the private market.

The Markit iTraxx Australia index was also little changed at 106 basis points as of 11:50 a.m. in Sydney.

Bloomberg