Growing junk bond issuer queue rattles investors

VNStockNews.com - Asian bond spreads widened on Tuesday as worries about the sustainability of the economic recovery set in and new debt offerings from lower-rated borrowers added to concerns.

The Asia ex-Japan iTraxx investment-grade index moved out by 7 basis points to a mid-point of 124.5 bps. It is now much higher than the low of 95 struck in mid-October and September's close of around 105.

A holiday in Japan kept trading volumes low.

Bonds from Philippines, one of the most active issuers in the region, also fell and the cost of insuring its debt rose.

Its newly sold bonds due in 2034 traded half a point lower at 97.50/97 cents on the dollar, much lower than last month's issue price of 99.382.

The 5-year credit default swaps widened 5 basis points to 190/200.

"The quality of paper that is coming out is not getting participation from professional investors -- the market is getting a bit spooked," said Dilip Shahani, credit analyst with HSBC referring to the lower-rated borrowers in the market.

He said that as the year end approached investors would protect their profits and risk-taking would diminish as a result.

"The momentum traders are about to get caught out," he said.

Chinese property developer Agile Property is the latest to join the queue of borrowers with plans to issue 7-year bonds not callable for 4 years.

It follows Indonesian coal mining company Bumi Resources which appointed banks for a debt offer on Monday.

Both are rated below investment grade.

Vietnam, which last made a visit to the global debt capital markets in 2005, also plans to raise $1 billion via a bond sale in early 2010.

It is rated BB, two notches below investment grade.

Issues of bonds denominated in dollars, euros and yen have raised about $8 billion in October, compared with $47 billion raised in the first nine months of the year, averaging a shade over $5 billion each month.