(Bloomberg) -- The ball is back in the buyer's camp for Asian dollar bonds as borrowers are having to pay a premium again for new issues to draw investors back to the market.
The average bond issuer has to fork out around 15 basis points over secondary-market trading levels, up from zero to 5 basis points just last year, said Frank Kwong, Asia Pacific head of primary markets at BNP Paribas SA in Hong Kong. He was referring to Asia's dollar bond market overall, but said the numbers for high-yield notes could be even higher.
In the U.S., borrowers are now regularly paying a so-called new issue concession of more than 10 basis points after selling a huge amount of debt over the last two years at almost no premium.
The spread on Asian speculative-grade dollar notes was at 356 basis points Wednesday, and reached a 2018 high of 380 basis points on March 27, Bloomberg Barclays indexes show. While issuers are grappling with rising funding costs, the juicy premium is beginning to lure investors back, as spreads have risen from a record-low of 277 basis points in January.
“Asian high yield sold off quite dramatically, in fact we are at a premium now to U.S. high yield,” said Hayden Briscoe, head of Asia Pacific fixed income at UBS Asset Management, on Bloomberg TV on Wednesday. “So we are getting quite excited about that and we are starting to add risk back into our portfolio and look for opportunity here.”
The weakness in high-yield bonds comes at a time when there's supply-side pressure out of China. Beijing's commitment to cracking down on domestic financial leverage -- showcased by the appointment of de-risking champion Guo Shuqing to a top role at the central bank -- is pushing more junk-rated borrowers to consider tapping the offshore bond market.
Read here about how some investors see the re-pricing of Asia junk bonds as a time to buy
--With assistance from Tian Chen
To contact the reporters on this story: Narae Kim in Hong Kong at nkim132@bloomberg.net, Carrie Hong in Hong Kong at chong61@bloomberg.net.
To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cormac Mullen, Beth Thomas
©2018 Bloomberg L.P.
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