Another week, but the same old problems for Asian companies looking for funding in the dollar bond markets. Cautious is not just the watchword — it’s the only word.
Gone are the glory days of the first half of the year, when investors were pampered with investment-grade issues pretty much every day. In the last seven days, there has been just one.
Bankers are running out of descriptions for the market, which they typically label as dysfunctional or crazy. With investment grade spreads jumping more than 20bp on a daily basis, who can blame them? And who can blame issuers for staying well out of it?
The thing is, there are issuers who do need to tap the market. So what should they do?
They could, of course, hang on for as long as they possibly can in the hope that the dollar market stages a remarkable revival. But that doesn’t look too likely. The Fed’s Ben Bernanke has made it as clear as he can that the country is looking to reduce its quantitative easing programme at the first opportunity. Pressure is growing on central banks the world over to rein in their stimulus packages, most recently from the Bank for International Settlements.
So what about falling back on other currencies? That would fairly standard practice when one market looks nasty but, unhelpfully, many local currencies in the region are doing pretty badly too. Increasing US treasury yields and a strengthening dollar have seen currencies such as the Indonesian rupiah and the Philippine peso falter. Basis swaps are looking grim.
Developed economy currencies such as the Japanese yen are not faring much better. Market sentiment in Japan has been poor since the start of the year. Samurai volumes are down 61% from the total raise in the first half of 2012. One Tokyo banker says many of her peers have been bitterly disappointed by the scale of “Abenomics”, saying that it goes nowhere near far enough to make a difference.
Dim sum is one of the rare bright spots. Volumes there have grown to a half-year record of $7.9bn. Hong Kong investors say issuers ought to find the market appealing given its lower correlation with the dollar than many other Asian currencies. The Singapore dollar is another that bankers cite as a possible attraction for issuers.
Perhaps there is a simpler lesson. There may be little consensus on which currency to fall back on, but there is some agreement on a much more basic point. Issuers who are in no desperate need to stay away altogether. And if they really need money, get a loan instead.