Indonesia Breaks Asia Dollar Bond Drought as Credit Risk Falls
10 July 2013
By Bloomberg
Indonesia’s government plans to sell dollar-denominated bonds as early as Wednesday, reviving U.S. currency issuance in Asia outside Japan as credit risk falls.
The Southeast Asian nation is marketing notes due in October 2023 to yield about 5.45 percent and Barclays Plc, JPMorgan Chase & Co. and Standard Chartered Plc are helping to manage the sale, according to a person familiar with the matter who asked not to be named because the terms aren’t set. Mitsubishi, Japan’s biggest trading house, also plans to sell five-year dollar bonds Wednesday.
The new offerings follow the best gain in a week for Asian dollar debt, which drove interest costs down from a 17-month high. No companies from the region have sold new notes in the currency since Korea Gas raised $100 million from floating-rate notes on June 26 and China Huaneng Group Corp. borrowed $400 million on June 4, Bloomberg data show.
“It seems U.S. Treasury yields may have plateaued for the moment and people have a little bit more confidence with longer- dated issues,” said Singapore-based Charles Macgregor, who tracks the region’s high-yield bonds as head of Asia at Lucror Analytics.
“The environment is stabilizing and volatility may have left the market.” India, China Asian corporate notes advanced 0.6 percent yesterday, the most since July 2, according to indexes compiled by JPMorgan.
Indonesian and Chinese dollar debt both climbed 0.8 percent, their best one-day performance in a week, while average yields fell 9 basis points to 5.76 percent, down from the highest since January 2012. Ten-year Treasury note yields have declined 10 basis points this week to 2.64 percent, down from an almost two-year high of 2.74 percent on July 5.
Indonesian state-owned oil company Pertamina Persero’s May 2023 bonds are yielding 5.96 percent after falling eight basis points yesterday to 5.77 percent, Bloomberg-compiled prices show.
That compares with 5.08 percent for the country’s similar- maturity sovereign debt, which dropped 13 basis points on July 9. Mitsubishi is marketing its five-year notes at a spread of about 165 basis points more than similar-maturity Treasuries, a person familiar with that matter said Wednesday.
The cost of insuring corporate and sovereign bonds in the Asia-Pacific region against non-payment dropped Wednesday, according to credit-default swap traders. Bond Risk The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell three basis points to 152.5 basis points as of 8:52 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show.
The measure is set to close at its lowest level since July 2, according to data provider CMA. The Markit iTraxx Australia index declined 2 basis points to 129 as of 10:18 a.m. in Sydney, National Australia Bank. prices show.
The benchmark is poised for its lowest close since June 19, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market. The Markit iTraxx Japan index decreased 0.5 of a basis point to 102.5 as of 9:17 a.m. in Tokyo, according to Citigroup.
The gauge, which has ranged from 74 to 148.1 this year, is on track to fall 7.3 basis points this month, CMA data show.
Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.
The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.