Asia bond sales jump in April as war lull spurs rush in issuance

[JAKARTA/HONG KONG] Asia-Pacific’s US dollar bond market saw its strongest April in five years as the start of a ceasefire in the Iran war opened the floodgates to a rush of issuance.

The US$38 billion of offerings last month was the highest for any April since 2021, according to data compiled by Bloomberg. That was a jump from the US$22 billion seen in March when energy-sensitive Asian economies were hit by the outbreak of the Iran war, even as global credit markets held steady.

The 67 per cent year-on-year increase in April suggests regional borrowers are seeking to diversify their funding needs and not just dashing to meet their liquidity requirements. The outcome also underscores a move towards US dollar financing to insulate against future geopolitical spikes.

“The window is open again,” said Daniel Kim, head of debt capital markets for Asia at HSBC Holdings in Hong Kong. “Equity markets have stabilised, issuers sense a positive turn and they are taking advantage of it before volatility returns, and that’s why you have seen a flood of deals.”

The strongest markets in the region last month were Japan, Australia and South Korea, which accounted for about 78 per cent of the total volume, the data showed. The large share of issuance by those countries highlights a flight to quality that may continue in the coming months.

“Whenever volatility eases, the strongest names come first, such as issuers from Japan and Korea, and then the market gradually moves down the credit curve,” HSBC’s Kim said.

Year-to-date volumes in Asia are now broadly flat from a year earlier, in line with global markets. The turnaround comes as markets have stabilised, pushing down borrowing costs after spiking in early March.

The average yield premium of Asian investment grade US dollar debt has dropped to a record low, according to a Bloomberg index. That tight spread indicates that investors are willing to take very little premium on the region’s credit despite the simmering geopolitical tensions.

While the April tally underscores the improving sentiment, the outlook remains uncertain. The current truce in the Middle East remains fragile and any breakdown risks disrupting energy flows and unsettling markets yet again.

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Borrowers exposed to higher oil prices will face potential higher premiums to access the market, said Rishi Jalan, head of Asia debt syndicate at Citigroup.

“Issuers we work with are prepared and ready to tap quick and fast. In these markets, agility is key as windows can open and close fast,” he said. BLOOMBERG