Asia Credit Rallies Most in Months as Oasis in Volatile Markets

Published 26 January 2022, 05:36:25.546 GMT

(Bloomberg) -- Asian corporate bonds have been spared this week’s broader market rout, with a relief rally in Chinese debt that’s offsetting the impact of U.S. policy tightening. 

Spreads in a Bloomberg Asian dollar-denominated debt index, of which Chinese notes are the biggest component, narrowed 2 basis points this week. That contrasts with premiums on high-grade U.S. debt, which have widened to the most since December 2020. Asian junk bonds also stand out, with the longest run of gains in five months led by a rebound in Chinese developers. 

Market watchers expect the Federal Reserve to flag an interest-rate liftoff in March later today, and economists including those at Goldman Sachs Group Inc. see the U.S. central bank raising rates four times this year. By contrast, China’s central bank has taken a series of easing steps to support its economy and stem contagion from stress in its property market.

“The recent divergence in U.S. and Asian credit may partly be explained by the different monetary policy routes followed by China and the U.S., with China easing measures mainly for property sector,” said Charles Macgregor, head of Asia at Lucror Analytics Pte Ltd. “Asian junk dollar bonds, in particular are rallying, as Chinese property dictates the region’s high-yield spreads.”

By Finbarr Flynn and Ameya Karve