What did Pimco say last week?
You have to have a keen eye for the next big (bond-related) buck to keep up with the world’s largest bond fund manager, which is moving to set up an Asian bond fund just as the region is seeing a surge of activity in fixed-income markets — both in dollar-denominated and local currency debt.
Friday alone saw the completion of four benchmark-sized bond deals (meaning $500m worth or more): a sovereign issue from Sri Lanka, the largest Asian high-yield in more than a year from Indonesia’s Adaro Energy, and another Korean offering from Korea Expressway, topped off by the Philippines’ highly successful sale late on Friday of $1bn worth of 25-year, dollar-denominated bonds.
As FinanceAsia notes on Monday, the deluge of Asian offerings had seemingly no impact on investor demand, with each of the deals being well subscribed.
And on Monday, Bloomberg reported that Temasek, Singapore’s government-owned investment company, plans a benchmark-sized sale of 10-year, dollar-denominated bond.
But it was the Philippines’ issue that confirmed the extent of investor appetite for yield. In almost no time, from the US afternoon on Thursday when the deal was first announced at a size of $750m to $1bn, to the Asian close on Friday, the Philippine sale attracted over $5bn of demand and more than 200 accounts, as Bloomberg notes.
The bigger than expected response enabled the bookrunners — Deutsche Bank, HSBC and UBS — to confirm the $1bn size of the sale and to tighten the yield guidance from an initial 6.5 per cent to about 6.45 per cent (plus/minus 2.5bp) by Friday afternoon.
Apart from the attractive yield on the Philippine issue — 6.425 per cent, or about 2.17 percentage points more than similar-maturity US Treasuries, according to Bloomberg — one reason for the strong interest, in FinanceAsia’s view, was the 25-year maturity. It explains:
In Asia there hasn’t been any dollar bonds with that kind of maturity for 18 months, which means investors with long-dated liabilities who tend to play this part of the curve were keen to make the most of the opportunity. The long end of the Asian curve in general has rallied lately and the volatility has come down; more specifically, there has been enough buying at the long end of the Philippines curve to suggest that there would be demand for another issue at that end. Indeed, the Philippines curve has been inverted at the long-end, making this a good opportunity for government to get long-dated funds at a reasonable cost.
Indeed.
From the perspective of the Asian issuers, however, there are motives beyond simply exploiting the growing appetite for emerging market risk, and increasing talk of Asian “exit strategies” and imminent interest-rate rises. Asian issuers such as the Philippines and Singapore’s Temasek are also clearly betting on the direction of the dollar — and the likelihood that US interest rates won’t be going anywhere, anytime soon.
The sentiment is catching on. Elsewhere in Asia, Australian corporates are also gearing up to issue US dollar-denominated bonds. As Bloomberg reports on Monday, the Australian companies plan to sell dollar-denominated debt to access a new pool of investors prepared to buy longer-dated notes.
Related links:
Emerging economy bond markets – Urbanomics
Japan’s JGB dilemma – FT Alphaville
Investment Outlook – Doo-Doo Economics – Pimco
Asian local currency bonds enjoy boom times - FT