Asia bonds, specifically speculative grade debt, related exchange traded funds can see higher yields as issuers pay more to raise cash requirements.
“I would say, the start of 2014 looks very different from 2013,” Viktor Hjort, head of Asia fixed-income research at Morgan Stanley, said in a Wall Street Journal article. “[Borrowers] are forced to pay up in yields, or new issue premium, to attract investors. That’s 180 degrees different from almost no new issue premium 12 months ago… .”
Due to diminished loan demand coupled with tougher capital requirements, issuers will have to pay higher premiums, or higher interest rates, to bring in investors. [Outflows From Asian Bond Funds Slow a Bit]
Big Chinese property developers Guangzhou R&F Properties Co. and Kaisa Group Holdings Ltd. announced large high-yield bond sales in Asia Monday.
In the dim-sum bond market – Chinese yuan denominated bonds issued outside mainland China, Export-Import Bank of China is expected to issue 4 billion yuan, or $661 million, in offshore bonds later in January, and the Agricultural Development Bank of China is also expected to sell dim-sum bonds later this week.
Investors interested in the Chinese bond market can take a look at a couple options, including the PowerShares Chinese Yuan Dim Sum Bond Portfolio (NYSEArca: DSUM) and Market Vectors Renminbi Bond ETF (NYSEArca: CHLC). DSUM has a 3.19% 30-day SEC yield and CHLC has a 2.50% 30-day SEC yield. [China Bond ETFs to Generate Yield and Diversify Rate Risk]
For those looking for a broader play on Asia debt, the WisdomTree Asia Local Debt Fund (NYSEArca: ALD) provides exposure to local debt denominated in currencies of Asia Pacific ex-Japan countries, with top country exposure to South Korea 12.2%, Malaysia 11.9%, Australia 11.7%, Singapore 11.7% and Thailand 11.5%. ALD has a 2.65% 30-day SEC yield.
Additionally, the Market Vectors Emerging Markets High Yield Bond ETF (NYSEArca: HYEM) helps investors diversify across an even broader range of high-yield emerging market bonds, including a 15.6% allocation to China, 6.4% in Indonesia and 3.0% in India, along with other developing economies. HYEM has a 6.97% 30-day SEC yield.
For more information on bonds, visit our bond ETFs category.
Max Chen contributed to this article.