Asian dollar-denominated bond markets broke all records in August and since then, the issuance spree has continued, culminating at the end of the October with two blow-out deals for two neighbouring sovereigns at different ends of the credit spectrum: China and Mongolia.
The People’s Republic of China attracted $21 billion of demand for a $2 billion offering and the Government of Mongolia $5.5 billion for an $800 million deal one day earlier despite carrying a triple-C rating.
What is driving this demand? For the fourth time, FinanceAsia teamed up with HSBC and S&P Global Ratings to commission a survey of the region's bond investor base.
The poll conducted by East & Partners across five weeks to mid August, had 176 responses from institutional fixed income investors with $742.7 billion in assets under management.
One message rang out loud and clear. Investors desire for yield is continuing to drive them down the ratings spectrum as fears of a steep rate hiking cycle in the US ease off.
If 2017 will be remembered for anything, it will be for the huge volume of issuance by high yield issuers and from sectors that previously had limited market access such as commodities.
aSpreads have reached historically tight levels and investors continually worry that spread compression has reached its end point. And yet at the same time, more than three-quarters of respondents expressed their intention to increase their exposure to the asset class.
Their favoured markets are unsurprisingly the region's most populous: China, India and Indonesia.
China has become the dominant force in Asia's bond markets. Since the last survey was conducted in the spring, China has launched Bond Connect, a pivotal moment in the history and opening up of its $9 trillion bond market.
The survey makes it clear that while average daily trading volume stands around the $300 million mark, there is still a long way to go before the trading link becomes an investor favourite. Many respondents said they did not really understand how it works and worry about the sophistication of credit analysis on the Mainland.
On the plus side, investors’ knowledge and desire to invest in green and ESG (environmental, social and governance) bonds continues to grow all the time.
What might bring the party to an end? Here investors said they while they remain worried about European political risk and heightened geopolitical risk, their overriding fear is that the bull run has just been too good to last.
For an analysis of the results, the raw data and a database of responses to previous survey, please visit our microsite.
