Asian corporate bond markets

Decoupling: don’t write it off just yet. In Europe, corporate debt has been flying off the shelves. Borrowers have sold $109bn of bonds this year – more than double last year’s rate, according to Dealogic. Siemens, Imperial Tobacco, Vodafone and BMW launched big deals or expanded existing issues last week.

In Asia, things look fine on the surface: companies have raised about $23bn, the best start on record.

But if you strip out various quasi-governmental Asian entities and Australian banks making hay with a state guarantee on new borrowing, the picture changes. The only big non-bank issuers without some kind of state imprimatur are TDK ($939m) and Asahi Glass ($783m).

This is worrying. Granted, Asia’s bond markets are less deep and liquid than Europe’s, depending on a few big regular borrowers to galvanise primary issuance. But alternative sources of funding are drying up. Emerging markets-focused equity funds have pulled in their horns. Banks are hoarding capital and shunning corporate risk: new syndicated loan agreements in Asia (ex-Japan) have dwindled to $4bn this year, about one-eighth of a year ago.

It may be that funding costs seem unappealingly high to Asian corporate treasurers. Yet this year’s glut of government paper may force them higher still. South Korea’s auction of 10-year bonds failed to rouse sufficient buyers for a second consecutive month on Monday. If governments from India to Australia are serious about piling on debt to revive their economies, coupons probably need to rise – which will raise borrowing costs for everyone. For the hordes of Asian credits on the lowest rungs of investment grade, the risk of tipping into junk territory is rising. Borrowers should nail down these rates while they can.

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