Dollar bond sales in Asia have had their worst start to the year since 2016, with issuance down 28% compared to the previous year. Asian borrowers are opting for cheaper financing at home and waiting for the Federal Reserve to cut interest rates. The narrowing risk premiums on dollar notes in the region have also weighed on demand. Asian companies and governments have found it less expensive to sell debt locally, especially in China where policy easing has been implemented to support the economy. The subscription ratio for dollar debt offerings in Asia has reached around four times the number of accepted bids so far this year, below the average of the previous five years.
Foreign investors were net sellers of Asian bonds in April, with net sales of $1.91 billion from Indonesia, India, Thailand, Malaysia, and South Korea. The disposals were significantly lower than the $4.69 billion sold in March. The strong U.S. dollar and uncertainties around the Federal Reserve's interest rate cuts dampened investor appetite. Indonesian bonds saw outflows of about $1.7 billion for the third consecutive month, while Indian bonds experienced a shift with investors pulling out $1.31 billion, ending a year-long buying streak. Thailand saw outflows for the fifth month, totaling about $881 million. However, South Korean and Malaysian bonds attracted $1.86 billion and $122 million worth of foreign capital, respectively. The dollar weakened this month after the Federal Reserve held interest rates steady and weaker-than-expected U.S. non-farm payrolls and CPI data for April tempered concerns about the U.S. economy overheating. [f11267e5] [2ec67b8c]
Bond issuances in China reached 6.9 trillion yuan in April this year, with treasury bonds at 1.08 trillion yuan, local government bonds at 343.91 billion yuan, financial bonds at 1.08 trillion yuan, and corporate credit bonds at 1.47 trillion yuan. Outstanding bonds held in custody were 161.4 trillion yuan at the end of April. [b44283c7]
Issuance of panda bonds on the Chinese mainland is forecast to rise by one-third this year to hit a new record of about 200 billion yuan ($27.4 billion), as high U.S. interest rates make yuan-denominated debt more appealing to foreign companies and institutions. Institutions from the Middle East and Latin America are likely to join the panda bond boom in light of China’s strengthened relations with those regions. Foreign issuance interest surged after the U.S. Federal Reserve's rate hikes, with China's lower rates and policy changes facilitating onshore bond issuance and fund transfer. Notable foreign issuers include Deutsche Bank, BASF SE, CapitaLand Investment Ltd., and Bayer AG. Panda bonds were first introduced in China in an effort to internationalize the yuan. By the end of 2023, the Shanghai Clearing House reported 195.4 billion yuan in panda bonds in its custody. As of the end of April 2024, the Shanghai Clearing House reported 242 billion yuan in panda bonds in its custody. In March 2024, CapitaLand Investment Ltd. raised 1 billion yuan through a sustainability-linked panda bond. In April 2024, Deutsche Bank AG issued a 3 billion yuan panda bond, marking the largest issuance by a financial institution in six years. A subsidiary of BASF SE issued its first 2 billion yuan panda bond in June 2024. The rise in panda bond issuance is driven by high U.S. interest rates and the appeal of yuan-denominated debt. [4a823a73] [d40a4492]