The Asian bond market raced through $100 billion in annual corporate bond sales for the first time in history as the week of September 10 saw $6.7 billion of debt issued in the region.
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Banks have traditionally been the cheapest source of debt so corporations had no need to use fixed-income markets as a source for cash. This has kept the Asian bond market trailing those of the US and Europe.
Now, bank loans are not as easily available despite low interest rates. European banks have also tightened their lending and new regulatory requirements for increased bank reserves have made banks more cautious in general.
At the same time, investors’ appetite for risk
has increased along with confidence from Europe’s focus on resolving its sovereign debt crisis.
Interest rates on safe haven debt like US treasuries are low and investors are looking for better returns.
Chinese property developers have been issuing high-yield debt attracting heavy buying interest from investors. Southeast Asian financial institutions have also been heavy buyers.
Banks are using the opportunity to bolster their balance sheets before the Basel III capital reserve requirements become effective. A blend of high-yield debt, higher rated corporates, and bank debt has helped the Asian market catch up with its US and European counterparts.
Clients who desire higher yields and are able to take on higher risk may consider Asian bonds as a way to diversify their income portfolios.