Rising interest rates and uncertainty in China’s real estate sector prompted companies in Asia-Pacific to take out bank loans instead of issuing bonds in the bond market, according to new data.
Companies raised $124 billion through dollar bonds in the first half of 2022, the lowest half-year figure since the second half of 2018, according to dealogical.
The total was well below the $222 billion in issuance the previous year.
“Volumes are significantly lower,” said Leonard Kwan, portfolio manager of T Rowe Awardthe dynamic emerging market bond strategy of . “I would say we’re probably targeting 20% lower gross issuance than last year.”
Kwan attributed the decline in bond market volumes to the war in Ukraine, problems in China’s real estate sector, as well as macroeconomic uncertainty surrounding the US Federal Reserve’s interest rate hike program.
Bond yields at their highest since 2011
The yield on benchmark 10-year U.S. Treasuries hit 3.498% in mid-June — the highest since April 2011 — pushing up the rates companies have to pay investors.
While US yields have since retreated, Kwan does not see this as a catalyst for more issuance in the second half, as the decline was triggered by growing fears of an impending recession.
“Investment grade names haven’t had any funding issues – they just have to come to terms with the reality that there is a higher cost, but many high yield issuers will struggle to refinance their maturing debt. “, did he declare.
By contrast, many banks in Asia have ample liquidity and companies have borrowed from them rather than resorting to the bond market.
Lending volumes in Asia excluding Japan remained strong in the first half of 2022 at $267 billion, according to Refinitiv data, not far from the $269 billion recorded in the first half of 2021, which was the highest of the past five years. years.
“We’ve seen more borrowers turn to the lending market…and we expect that trend to continue with rates expected to remain high,” said Mildred Chua, head of syndicated finance at DBS.
- Reuters, with additional editing by George Russell