Rising interest rates and Chinese property sector uncertainty have prompted Asia-Pacific companies to take out bank loans instead of bond market issuances, new data show.
Companies raised $124 billion from dollar bonds in the first half of 2022, the lowest half-yearly figure since the second half of 2018, according to Dealogic.
The total was well down from the $222 billion in issuances a year earlier.
“Volumes are definitely lower,” said Leonard Kwan, portfolio manager of T Rowe Price’s dynamic emerging markets bond strategy. “I would say we’re probably tracking for 20% lower gross issuance than we had last year.”
Kwan attributed the lower bond market volumes to the war in Ukraine, problems in China’s property sector, as well as macroeconomic uncertainty around the US Federal Reserve’s interest rate rising programme.
Bond Yields Hit Highest Since 2011
The yield on benchmark 10-year US Treasury notes hit 3.498% in mid-June – the highest since April 2011 – pushing up 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 of the year as the drop was triggered by increasing fears of a looming recession.
“Investment grade names have had no issues in financing – they just have to accept the reality that there’s a higher cost, but a lot of high-yield issuers are going to struggle to refinance their maturing debt,” he said.
In contrast, many banks in Asia have plenty of cash on hand, and companies have borrowed from them, rather than tapping the bond market.
Asia loan volumes, 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 largest in the past five years.
“We have seen more borrowers pivoting to the loan market … and we expect this trend to continue with rates expected to stay high,” Mildred Chua, head of syndicated finance at DBS, said.
- Reuters, with additional editing by George Russell