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Markets

Junk Bonds From Asia Beat Most Everything Else: Credit Weekly​

• Asia high-yield notes have returned over 9% this year
• Investors can’t ignore EM markets, says UBS Asset’s Khan

A pedestrian by a housing construction project in Liupanshui, Guizhou province, China.
Photographer: Qilai Shen/Bloomberg
By Finbarr Flynn and Ronojoy Mazumdar
June 16, 2024 at 3:00 AM GMT+8


Money managers including T. Rowe Price Group Inc. believe Asian junk dollar bonds have further to run after outperforming almost everything else in debt markets this year.

The notes have returned 9.8% year-to-date compared with about 3% for global speculative peers and losses across much of high-grade debt this year, Bloomberg indexes show.

The outperformance is driven in part by a rebound in Chinese junk debt from record lows as authorities in Beijing throw their weight behind steps to pull the nation’s property market out of an unprecedented slump.

Have a confidential tip for our reporters?

 

[k1976]

https://www.businesstimes.com.sg/in...-bond-sales-are-hottest-five-years-india-boom

Even 160th Holey Turth also high recommended 1moon ago

 

[k1976]

Asian junk bond sales are hottest in five years on India boom​

Published Thu, May 9, 2024 · 11:41 AM

Indian shadow banks have been particularly eager to secure offshore financing to lend in one of the world’s fastest-growing major economies. PHOTO: REUTERS
Bonds


ASIA’S high-yield US dollar bond sales this year have grown annually for the first time in five years, fuelled by Indian financial companies’ rush to access offshore investors.

Regional sales of such corporate notes, outside of Japan, touched US$5.9 billion so far this year, already surpassing US$4.4 billion in all of 2023, according to Bloomberg-compiled data. Indian borrowers have topped the share of sales so far this year, with nearly 44 per cent share.

The annual declines prior to this year’s hike started in 2020 and aligned with four years of China’s property crisis that sent several builders – major contributors to Asia’s junk US dollar bond market – into distress, restructuring and liquidation.

 

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The uptick speaks to investors’ confidence in India’s growth and robust consumer demand, while regional rivals, including China, rein in offshore borrowing amid economic uncertainties and rising debt.

“A number of Indian borrowers are ready to tap the high yield offshore bond market, taking advantage of strong investor appetite seen in recent deals,” Bhavik Pandya, head of debt capital markets for South-east Asia at Bank of America, said.

Indian shadow banks – hemmed in by the central bank’s regulatory push to rein in their ability to borrow domestically – have been particularly eager to secure offshore financing to lend in one of the world’s fastest-growing major economies.

 

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Four such lenders – Indiabulls Housing Finance, Shriram Finance, Muthoot Finance and Manappuram Finance - sold a combined US$2.05 billion of bonds this year, making up a large chunk of the total US$2.6 billion sold by Indian borrowers. At least one other non-bank firm – IIFL Finance – is in the pipe for a potential US dollar note offering.

“There is a fear that if inflation doesn’t ease substantially, the rates could be higher for longer, and strong high-yield issuers are taking advantage of the low spreads to refinance,” said Satyajit Singh, head of fixed income strategy at Emirates NBD Bank.

Good balance sheets of most Indian shadow lenders and their established presence in the offshore market have made it comparatively easy for them to access the dollar bond market, Singh said.

Annual sales in Asia ex-Japan bottomed out last year from a record US$94.4 billion in 2019, according to Bloomberg-compiled data of offerings with minimum size of US$100 million. While Asia junk US dollar bond sales suffered in recent years, mainly impacted by the China property crisis, US high-yield bond sales rose annually every year in the same period except one.

US corporates sold over US$137 billion of junk bonds so far this year, compared with nearly US$194 billion in all of 2023. Such sales in Europe touched 60.9 billion euros (S$88.7 billion) this year versus a little over 74 billion euros last year.

Increased investor risk appetite, healthy liquidity and lower implied cost of refinancing high-yielding bonds have boosted global junk note sales, Pandya said.

 

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Still, the outlook for the rest of 2024 for junk bond sales in Asia is far from clear. Offerings may slow down unless the current bearish trend in US Treasury yields stops, Emirates NBD’s Singh said. “We have already seen some issuers defer their bond sales,” he said. BLOOMBERG


DUN MISS THE BOAT again and again?

 

[k1976]

https://www.google.com/amp/s/www.et...en-shoots-emerging-asia-junk-bond-market/amp/


High Yield Junk Bond has Green Shoots de woh?

 

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Green Shoots Emerging in Asia Junk Bond Market​

By TODD SHRIBER June 11, 2024

High yield or junk bonds carry added risk. Hence the higher yields. In some cases, the elevated risk profiles of junk-rated debt can keep investors at bay, particularly when it comes to ex-U.S. fare.

That reluctance can lead to missed opportunity. Consider the case of the KraneShares Asia-Pacific High-Income Bond ETF (KHYB).

The fund is up an admirable 3.13% YTD, while the largest domestic junk bond is slightly lower.


Obviously, five months and change isn’t enough to adequately measure performance when it comes to bonds,. But it’s not a stretch to argue that KHYB deserves more acclaim.

That claim is supported by the fact that there are signs of life emerging in Asia’s junk bond markets. Those markets were previously hampered by weakness caused by China’s real estate debt.

 

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Favorable Fundamentals Emerge for KHYB​

The aforementioned headwinds created by a spate of real estate defaults in China are hard to overlook. The good news is that KHYB isn’t a dedicated China ETF. Market participants are awakening to the fact that there are some solid ideas in Asia’s junk bond market that don’t involve China real estate bonds.

And recent data indicates increased sales of junk bonds across various Asia markets. The appetite for that debt has been steady.

“Regional sales of such corporate notes, outside of Japan, touched US$5.9 billion so far this year, already surpassing US$4.4 billion in all of 2023, according to Bloomberg-compiled data. Indian borrowers have topped the share of sales so far this year, with nearly 44 per cent share,” reported Bloomberg.

The $5.9 billion figure mentioned above is a month old. With more than six months remaining in 2024, this year’s high yield debt sales across Asia ex-Japan could easily be one of the best totals in years.

Further supporting the case for KHYB is its credit quality. Yes, this is a junk bond ETF, but it’s not heavily allocated to highly speculative debt rated CCC or lower. About 82% of KHYB’s holdings are rated BB and B. Plus, most central banks in Asia are unlikely to raise interest rates over the near term. In fact, most are done with their recent tightening cycles.

Examining economic factors that are supportive of Asia junk debt, market observers are forecasting regional GDP growth this year of more than 4% amid a mostly subdued inflationary climate.

https://www.google.com/amp/s/www.et...en-shoots-emerging-asia-junk-bond-market/amp/

 

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Here’s What to Watch in Asian Markets After Fed Decision, CPI​

• Wells Fargo sees region’s currencies performing well post-Fed
• Mizuho expects demand for Asia dollar investment grade debt

By Matthew Burgess and Winnie Hsu
June 13, 2024 at 6:45 AM GMT+8
Updated on
June 13, 2024 at 3:15 PM GMT+8


Asian stocks and currencies fluctuated on Thursday as investors parsed the double-whammy of a Federal Reserve rate decision and US consumer price data.

Equities and dollar-denominated bonds are seen benefiting, even if the bullish inflation reading was tempered by Fed officials pulling back their rate cut forecasts for the year, according to strategists.

Currencies like the rupiah and won are expected to outperform, they said, though some warned that the chance of a stronger dollar hadn’t gone away.

Have a confidential tip for our reporters

 

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Has private credit’s golden age already ended?​

A more competitive market is a less profitable one​

illustration: satoshi kambayashi
Jun 13th 2024
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The history of leveraged finance—the business of lending to risky, indebted companies—is best told in three acts. High-yield (or “junk”) bonds were the subject of the first.

That ended in 1990 when Michael Milken, the godfather of this sort of debt, was sent to prison for fraud.

In the second act, the extraordinary growth of private equity was financed by both junk bonds and leveraged loans, which require companies to pay a floating rate of interest rather than the fixed coupons on most bonds.

Private-credit investors are now supplying the third wave of money.

Since 2020 such firms, which often also run private-equity funds, have raised more than $1trn.

When interest rates rose in 2022 and banks stopped underwriting new risky loans, private credit became the only game in town. Wall Street chattered that its “golden age” had begun.

America’s $4trn leveraged-finance market now comprises junk bonds, leveraged loans and assets managed by private-credit firms, in roughly equal proportions.

Yet owing to fierce competition to refinance debt and fund scarce new deals, private credit’s prospects may no longer dazzle.

The industry’s fondness for ancient Greece (two big lenders are called Apollo and Ares) seems not to extend to the work of Hesiod. If it did, fund managers would know that what follows a golden age is not a platinum one, as with American Express cards, but the descent into a grim iron age.

 

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Why It’s BoomingHow It Got So BigBanking Escapees Make BillionsJPMorgan’s TradesFlawed Valuations
Markets

Private Lenders Storm Public Bond Markets at Record-Setting Pace​

• BDCs have already raised nearly double the debt sold in 2023
• Cheaper rates in unsecured corporate bonds vs secured market

By Caleb Mutua and Ellen Schneider
June 13, 2024 at 6:00 PM GMT+8
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A group of private credit funds backed by firms like Blackstone Inc. and Ares Management Corp. have found a cheap place to raise money, at a time when they already have record levels of cash: the investment-grade corporate bond market.


Private credit funds known as business development companies have raised over $13.4 billion in the US investment-grade bond market so far this year, according to data compiled by Deutsche Bank AG.

That’s already nearly double the $8 billion raised over the entire course of 2023, and the highest since 2021, when $21.4 billion was sold.
https://www.bloomberg.com/tips/

 

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Wall Street ponders what happens to booming private credit market when you-know-what hits the fan​

PUBLISHED FRI, MAY 24 2024 9:53 AM EDT

Leslie Picker
@LESLIEPICKER
WATCH LIVE

In this article

• ARES

Michael Arougheti, Ares Management Corporation Co-Founder, CEO & President
Adam Jeffery | CNBC

The explosion of private credit has been met with a whole host of concerns, but among the louder ones more recently is that the industry has not experienced a downturn at scale.

And therefore, what does that mean for borrowers when there's some kind of crisis?

When asked about the migration of assets to the non-bank sector during JPMorgan's Investor Day earlier this week, Chairman and CEO Jamie Dimon said, "we'll compete. We're going to be fine."

But he added that the "question they should be asking is, what does it mean for the United States of America?"

 

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"A lot of those folks who took private-credit loans will be stranded when [obscenity] hits the fan," Dimon said. "Banks tend to work with the borrower and the middle-market loan in the crisis…in the mark-to-market world of private credit, they have to, as a fiduciary, book it at par."

In other words, he said, "private credit hasn't dealt with high interest rates, hasn't dealt with the recession, and it hasn't dealt with high spreads."

We don't know how those workouts will…work.

The next day, the CEO of one of the largest private-credit firms defended the industry and how it will act in times of stress. When asked on CNBC about Dimon's recent comments, Ares Management CEO Michael Arougheti responded: "False."

"We've been investing in the private markets for 30 years; A loan is a loan whether it's held on a bank balance sheet or held in a private-credit fund," Arougheti said. "[Ares has] invested $150 billion into the private-credit market since we founded the firm, and we had a loss rate of one basis point. So everything that we've seen over the last 30 years would indicate that the risk people are trying to argue exists in our market just isn't true."

 

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Ares' Executive Chairman Tony Ressler, sitting next to Arougheti in the CNBC interview, said the growth in private credit will "actually reduce systemic risk."

"These assets are going onto the balance sheets of companies that are not highly levered and that do not finance themselves with short-term liabilities or customer deposits," Ressler said.

 

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Private credit default rates​

In January, the Federal Reserve looked at default rates in private credit and how they compare with loans made by traditional banks (leveraged loans and high-yield bonds).

Citing KBRA DLD data, the Fed showed, "despite seniority in debt structure, private-credit loans have relatively low recovery rate upon default (or equivalently, exhibit high loss given default) compared to syndicated loans or HY bonds."

We obtained updated figures on Thursday from KBRA DLD, which showed more of a mixed picture when it comes to implied recoveries.

The average post-default value of a direct loan was about 53.1 percent, below that of syndicated loans, which were 57.5 percent but higher than high-yield bonds, which were 46.3 percent

The Fed attributes some of that gap to private credit exposure being more tilted to sectors with lower collateralizable or tangible assets, like software, financial services or healthcare services.

But the quicker private credit grows, the more interconnected it becomes with the traditional banking space.

JPMorgan executives at Investor Day said the firm is the largest financier of private-credit portfolios, and it already has dedicated capital on the balance sheet that it uses in a direct-loan format for corporate borrowers.

The firm is also developing a co-lending program to boost the amount of capital it can deploy in this space.

So if the eventual downturn does manifest in the economy, it's likely that you-know-what will hit the fan for everyone. Some borrowers will feel the hit more than others

 

[k1976]

https://www.businessinsider.com/jam...-risks-retail-investors-debt-investing-2024-5

Lord Dimon has seen Hell To Pay scenario in his crystal ball, what is that sia?

 

[k1976]

Jamie Dimon says there could be 'hell to pay' if the swelling private-credit market starts showing cracks​

Filip De Mott
May 30, 2024, 9:04 AM ET
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Alex Brandon/AP

• "There could be hell to pay" if private credit markets wobble, Jamie Dimon said.
• He warned that there are bad actors in the industry, and they'll likely be the source of any issues.
• "I don't think it's systemic, but I do expect there to be problems."

 

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https://www.imf.org/en/Blogs/Articl...n-private-credit-market-warrants-closer-watch

IMF Veey Very Big Shot Sir has a recommendation for Private Credit Fund

 

[k1976]

Fast-Growing $2 Trillion Private Credit Market Warrants Closer Watch

Rapid growth of this opaque and highly interconnected segment of the financial system could heighten financial vulnerabilities given its limited oversight
Charles Cohen, Caio Ferreira, Fabio Natalucci, Nobuyasu Sugimoto
April 8, 2024


The private credit market, in which specialized non-bank financial institutions such as investment funds lend to corporate borrowers, topped $2.1 trillion globally last year in assets and committed capital. About three-quarters of this was in the United States, where its market share is nearing that of syndicated loans and high-yield bonds.


This market emerged about three decades ago as a financing source for companies too large or risky for commercial banks and too small to raise debt in public markets.

In the past few years, it has grown rapidly as features such as, speed, flexibility, and attentiveness have proved valuable to borrowers.

Institutional investors such as pension funds and insurance companies have eagerly invested in funds that, though illiquid, offered higher returns and less volatility.