The Asian consequences of the taper

From the FT two days ago:

Mr Bernanke’s first mention of tapering in May sent debt markets worldwide into a tailspin. But Asia was in many ways the worst-hit region.

Having broken full-year records for junk bond issuance by mid-April, the market froze abruptly, and remained largely closed for two months. New high-yield deals raised $3.7bn in May but just $176m in June, according to Dealogic, while monthly investment grade corporate bond volumes more than halved.

Chinese companies – which had been the main source of issuance this year – have been notably absent in recent months. No mainland-based borrower has tapped the dollar or euro bond markets since May 22, the day of Mr Bernanke’s remarks, while the market for new offshore renminbi bonds has been suffering from its longest ever barren spell.

The problems have not been confined to China. Indonesia’s sovereign bonds offer the clearest example of the change in attitudes towards Asian credit. In April this year, the country raised $3bn in 10-year debt with a coupon paying just 3.5 per cent, a record low. When it returned to the market two weeks ago, it sold $1bn of bonds with the same duration at a yield of 5.45 per cent. In that time the spread paid above US Treasuries had jumped from 1.76 per cent to 2.87 per cent.

Fund flows have played their part. June saw record outflows from emerging market fixed income funds, according to data from EPFR, forcing many to cut positions. Rising concerns about China, which late last month saw its worst interbank liquidity crunch to date, also sapped demand.

But Mr Bernanke’s comments have been by far the most important factor…

Again, I don’t wish to endorse the “we have created bubbles” argument as it is usually stated.  Still, those are not the results I had expected and I am seeing this data being more or less ignored by the corners of the economics blogosphere which I live in.

Here are some signs that Asian debt markets are stirring back to life.


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