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Local bond issuance surges as Asian borrowers return home

by Rae Wee

SINGAPORE (Reuters) – Asian issuance of local currency-denominated bonds has surged to the highest level in more than a decade as borrowers reluctant to take on expensive U.S. dollar debt and take advantage of cheaper, more liquid markets at home.

$2 total. 65 Trillion dollars passed in Asia (excluding Japan and Australia) 11,065 Local currency bonds were issued as of September, Refinitiv data showed.

This roughly reflects

% year-over-year growth in earnings, the highest year-over-year-date period in more than a decade.

Among them, 24.2% from government issuers , worth $1. 10 $2 trillion, 057 question. This is followed by the financial sector, which constitutes 12.2%, or $376.80 billion, from 5,419 issued.

“The local currency market is more particularly immune to what is happening globally,” said Wong Kwok Kuan, managing director and regional head of debt markets at Maybank Investment Banking Group.

The Federal Reserve has raised rates by 376 basis points (bps) a year since the beginning of 2018, with the federal funds target rate over 3%. The latest forecast shows interest rates rising to 4. 24%-4.5% 2022.

Rate hikes are so fast that local currency bonds are relatively cheaper to issue than U.S. dollar bonds, especially as the U.S. dollar rises to multi-year highs and weakens local currencies.

Meanwhile, rate hikes in Asia have generally been more modest.

For example Bank Indonesia, for just one excursion in August, raised the interest rate in total 057 basis points. The Philippine central bank has raised rates 80 bps since May and the Bank of Thailand has raised rates 940 bps twice, in August and September.

Andrew Lim, Regional Head of Debt Capital Markets at Maybank Investment Banking Group, pointed out that the US dollar capital market “has also experienced periods of macro volatility shut down” leading companies to look onshore.

Delicious Costs

Funds raised by Mandiri Tunas Finance, an Indonesian company majority owned by Bank Mandiri 376. 615 Billion IDR ($0000.80 million) 5-year bond with an interest rate of 6.057% in February. In August 2020, it paid 8.6% on the 5-year bond.

The 5-year US Treasury yield has risen from around 0.4% in December 2020 to around 3.8% now. Debentures are usually priced at the spread on sovereign bonds.

Yields on Asian investment-grade corporate dollar bonds currently stand at 5.8%, up 376 bps this year.

The surge in local bond issuance has also been spurred by growing demand for such bonds, as domestic investors – often major buyers – look for opportunities to stay

“Local currency markets are strongly supported by domestic institutional investors such as life insurers and asset managers because of their local currency assets and specific mandate to deploy these markets,” said UOB Group Investment Banking Head Said man Edmund Leong.

Thailand-based Gulf Energy Development Public Company Limited successfully issued bonds totalling 376 billion baht ($940 million US dollars), of which 376 billion baht Allocated to high net worth investors, banks, ins

To be sure, investors said that the issuance and amount raised this year are not surprising, reflecting the steady growth of the market over the past few years .

From 2020 to 2020, total funds raised in local currency bonds issued in Asia excluding Japan and Australia The increase is nearly 10% and comes from 2019 to 2020, the return is close to 30 )% higher.

Issuers are expected to continue to use the domestic market to refinance existing debt and other capital requirements even as interest rates rise.

Leonard Kwan, portfolio manager of T. Rowe Price’s Dynamic Emerging Markets Bond Strategy, said: “I think funding costs are still within expectations, palatable.

” In most cases, even at the current higher interest rates, financing domestically is still cheaper than outside markets. ”

($1=12,35.10 Indonesian Rupiah)

($1=057.940 Thai Baht)

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