Asian bond issuers are on a roll. They have easily managed to raise more than $100bn this year, topping that psychological benchmark on a frenetic period of issuance last week. They are keeping debt bankers busy with a seemingly endless stream of deals. And, crucially, they have proved able to push pricing tighter and tighter.
It is not surprising that Asian bond issuers should take advantage of the current climate to close deals inside their own yield curves. After all, investors are so hungry for deals that outstanding bonds manage to move tighter even when new supply is being executed.
But issuers should not get carried away. Investors still can — and, at some point, will — run for the hills.
Asian funding officials might see themselves as superhuman at the moment, able to pull off increasingly eye-popping feats of execution. But Superman was never a very realistic role model for anyone.
They should instead learn the dictum of Spiderman: with great power comes great responsibility. And unless Asian issuers realise they need to price deals responsibly, they can forget about web-slinging — investors will be slinging mud.
Making the most of it
Bond investors are famously fickle beasts, hungry for paper — any paper! — at one moment, and unwilling to buy all but the top credits the next. This is partly a reaction to fundamental newsflow, but it is as least as indicative of a herd mentality, albeit an understandable one.
Those investors who stick to the sidelines in times of bullishness in the markets will face scrutiny from managers, or from their own investors, who wonder why they did not get involved in a huge rally in credit markets. Sure, it may be policy measures, rather than economic fundamentals, that are driving the market tighter. But those policy measures mean something, and most investors are happy to go along for the ride. Why not you?
This inevitable line of questioning means that during a week in which sentiment has significantly shifted following undeniably positive moves from both the European Central Bank and the US Federal Reserve, fund managers simply have to get involved in the market. But that doesn’t mean they have to stay involved, and it doesn’t mean they will not get picky when issuers push them too far.
This forces Asian bond issuers to walk a fine line. Conditions in the market now are better than they could have wished for, and better than they can expect for the rest of the year. But if they push investors too hard, too fast, they will cut through the optimism and bring bond-buyers back down to Earth. That will be bad news for the issuers that want to follow.
Of course, funding officials that only plan to do one deal over the next year will not worry too much about what happens in the market after them. But those issuers that have a real stake in the development of Asia’s international bond market should be sure to leave something on the table for investors. That is the only way to move past the stop-start nature of Asia’s bond market.
Asian bond investors are hungry right now, even after going through busiest week of the year. But they will lose their appetite soon if the current supply leaves a sour taste in their mouths. Asian issuers should take note, and make sure they leave something sweet on the table for later.