As Asia’s borrowers turn homeward, local bond issuance surges

SINGAPORE, Oct 5 (Reuters) – Asian issuance of bonds denominated in local currencies have ballooned to their largest in more than a decade as borrowers turn shy of expensive US dollar debt and tap cheaper, liquid markets at home.

A total of USD 2.65 trillion has been raised in Asia excluding Japan and Australia via 12,075 local currency bond issues by September, data from Refinitiv showed.

That reflects a roughly 10% increase in proceeds from a year earlier and the highest for the year-to-date period in over a decade.

Of this, 47.2% came from government issuers, at USD 1.25 trillion across 2,057 issues. This was followed by the financials sector, constituting 31.2%, or USD 825.78 billion, from 5,419 issuances.

“Local currency markets are more peculiarly insulated from what’s happening on the global front,” said Wong Kwok Kuan, managing director and regional head of debt markets at Maybank Investment Banking Group.

The Federal Reserve has hiked interest rates by 300 basis points (bps) since the start of the year, taking the Fed funds target rate above 3%. The latest projections show that rate rising to 4.25%-4.5% by the end of 2022.

That frenetic pace of rate rises makes local currency bonds relatively cheaper to issue than dollar bonds, particularly as the dollar scales multi-year highs and weakens local currencies.

Meanwhile, rate hikes in Asia have generally been more subdued.

Bank Indonesia, for instance, only began hiking in August and has raised rates by a total of 75 bps. The Philippine central bank has increased rates by 225 bps since May and the Bank of Thailand has hiked by 25 bps twice, in August and September.

Andrew Lim, regional head of debt capital markets at Maybank Investment Banking Group, pointed to how the US dollar capital market had also “seen periods where it was shut given the macro volatility”, causing corporates to look onshore.

PALATABLE COST

Indonesian company Mandiri Tunas Finance, which is majority-owned by Bank Mandiri, raised 376.615 billion rupiah (USD 24.80 million) of 5-year bonds at 6.75% in February. In August 2020, it paid 8.6% on 5-year bonds.

Yields on the 5-year US Treasuries have risen from about 0.4% in December 2020 to about 3.8% currently. Credit bonds are typically priced on spreads over sovereign bonds.

The yield on Asian investment grade corporate dollar bonds is now at 5.8%, up 300 bps this year.

The spurt in local bond issuance has also been spurred by a growing appetite for such bonds, as domestic investors – typically the main buyers – hunt for opportunities to stay invested at home.

“The local currency markets are well supported by domestic institutional investors such as life insurance companies and asset managers, as they have local currency assets and specific mandates to deploy into these markets,” said Edmund Leong, UOB’s head of group investment banking.

Thailand-headquartered Gulf Energy Development Public Company Limited successfully issued debentures totalling 35 billion baht (USD 940 million) in August, of which 11 billion baht was distributed to high net worth investors, banks, insurance and securities firms.

To be sure, investors say that the volume and amounts raised from issuances this year are not surprising, and reflect steady growth in markets over the past years.

From 2020 to 2021, the total amount raised from local currency bonds issued in Asia, excluding Japan and Australia, increased by nearly 15%, and from 2019 to 2020, proceeds were nearly 30% higher.

Even as rates rise, issuers are expected to continue tapping domestic markets for refinancing of existing debt and other capital requirements.

“I’d say financing costs remain within expectations, palatable,” said Leonard Kwan, portfolio manager of T. Rowe Price’s dynamic emerging markets bond strategy.

“For the most part, it would still be cheaper to finance domestically, even at current higher rates, than external markets.”

(USD 1 = 15,185.0000 rupiah)

(USD 1 = 37.2300 baht)

(Reporting by Rae Wee; Editing by Vidya Ranganathan and Kim Coghill)

Oil prices little changed ahead of OPEC+ talks on supply cut

SINGAPORE, Oct 5 (Reuters) – Oil prices were little changed on Wednesday ahead of a meeting of OPEC+ producers to discuss a big cut in crude output after gaining more than 3% in the previous session.

Brent crude was up 1 cent at USD 91.81 a barrel at 0628 GMT, after climbing USD 2.94 in the previous session.

US West Texas Intermediate (WTI) crude futures fell 9 cents, or 0.1%, to USD 86.43 a barrel after gaining USD 2.89 a day earlier.

The Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, together called OPEC+, will meet in Vienna later on Wednesday to discuss output cuts of up to 2 million barrels per day (bpd), an OPEC source told Reuters.

A cut of that magnitude would be the biggest by OPEC+ since those made after the COVID-19 pandemic slashed demand in 2020.

“I will not be surprised if “buy the rumour, sell the fact” could happen since the strong rally in crude prices may have priced in such a production cut,” said Tina Teng, an analyst at CMC Markets.

Stephen Innes, managing partner at SPI Asset Management, said there “is a degree of profit taking and risk reduction ahead of the OPEC gathering”.

The United States is pushing OPEC+ producers to avoid making deep cuts, a source familiar with the matter told Reuters, as President Joe Biden looks to prevent a rise in US gasoline prices.

The real impact on supply from a lower output target would be limited as several OPEC+ countries are already pumping well below their existing quotas. In August, OPEC+ missed its production target by 3.58 million bpd.

However an agreement on big cuts “would send a strong message that the group is determined to support the market,” ANZ Research analysts said in a note, adding that it “would significantly tighten the market.”

US crude oil stocks fell by about 1.8 million barrels for the week ended Sept. 30, according to market sources citing American Petroleum Institute figures on Tuesday.

Capping gains for the day was the stronger dollar which makes oil more expensive for buyers holding other currencies, reducing demand.

(Reporting by Sonali Paul in Melbourne and Isabel Kua in Singapore; editing by Simon Cameron-Moore and Jason Neely)

Gold retreats as dollar steadies ahead of US jobs data

Oct 5 (Reuters) – Gold slipped on Wednesday as the dollar steadied, but bullion hovered above key level of USD 1,700 per ounce as investors held off making bigger moves ahead of US jobs data that could influence the Federal Reserve’s policy tightening path.

Spot gold was down 0.2% at USD 1,722.49 per ounce, as of 0625 GMT. Bullion lost some ground after rallying to its highest since Sept. 13, at USD 1,729.39, on Tuesday.

US gold futures dipped 0.1% to USD 1,728.10.

The dollar index stabilised somewhat after marking its biggest drop since March 2020 overnight.

Gold could break above the key resistance level of USD 1,735 in case of a weak ADP employment data, City Index analyst Matt Simpson said, adding markets are very sensitive to employment data at the moment.

The ADP National Employment Report, due at 1215 GMT, comes on the heels of a government survey that showed US job openings fell by the most in nearly 2-1/2 years in August, hinting at a cooling labour market.

This will be followed by the US Labor Department’s closely watched nonfarm payrolls (NFP) data later in the week.

“In case of a miss, traders will probably assume a weak NFP on Friday and that could weaken the dollar as traders get more excited about a Fed pivot and strengthen gold,” Simpson said.

US Fed officials recently reiterated their pledge to bring stubbornly high inflation under control.

While gold is traditionally seen as a hedge against inflation, rising US rates have dimmed the appeal of the zero-yielding asset. Gold is down 6% for the year so far.

On the physical front, sources told Reuters that gold-supplying banks have cut back shipments to India and focusing on China, Turkey, and other markets where better premiums are offered.

Spot silver slipped 1% to USD 20.89 per ounce, platinum fell 0.4% to USD 926.63 and palladium was 0.3% lower at USD 2,310.31.

(Reporting by Eileen Soreng in Bengaluru; Editing by Sherry Jacob-Phillips)

Philippines launches benchmark-sized dollar bond issue

MANILA, Oct 5 (Reuters) – The Philippine government has launched a three-tranche, benchmark-sized bond issue denominated in US dollars, National Treasurer Rosalia de Leon said on Wednesday.

The bonds have tenures of five years, 10.5 years and 25 years.

(Reporting by Enrico Dela Cruz)

Hopes of elusive Fed pivot drives markets higher once again

NEW YORK, Oct 4 (Reuters) – Investors suffering through a bruising year for markets are hoping that recent signs of wobbling economic growth will force the Federal Reserve and other global central banks to take their foot off the gas in the fight against inflation, sparking sharp rebounds in stocks and bonds.

The S&P 500 is up nearly 6% over the last two days, following a brutal September in which it fell 9.3% alongside declines in other global equity benchmarks. Yields on US Treasuries, which move inversely to prices, have plummeted by 33 basis points in October from multi-year highs hit last month.

Investor expectations of how high the Fed will raise rates in its battle against inflation have slipped in recent days, amid signs that growth in the US may finally be slowing. Investors in the futures markets now expect the fed fund rate to peak at 4.5% next year, compared to the expected peak of about 4.7% they were pricing in last week.

“The markets are sniffing out a blink by the Fed,” said Jim Paulsen, chief investment strategist at the Leuthold Group. “If they pause here, not only does the rate pressure suddenly drop but maybe you end up with a mid-cycle slowdown, rather than a recession.”

Markets have rallied on the hopes of a Fed pivot several times this year only to reverse and crumble to fresh lows, making investors wary of the current bounce. This time around, a series of weaker-than-expected data on manufacturing and job openings in the United States are among the factors fueling hopes that weakening growth will push the Fed to slow its market-punishing rate hikes.

Some investors have also taken Tuesday’s smaller-than-expected rate increase from Australia’s central bank and a decision by the Britain’s new government to scrap planned tax cuts as signs that governments and monetary authorities are being increasingly responsive to signs of weakening growth and market instability.

“There is a growing sense that financial markets are showing sufficient stress as to warrant a collective pivot away from the global trend toward tighter policy,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.

Plenty of market participants are skeptical the rebounds in stocks and bonds will last. Mark Haefele, chief investment officer at UBS Global Wealth Management, attributed the stock rebound to “oversold” conditions in the S&P 500, exacerbated by month-end rebalancing by money managers at the end of September that drove stocks lower.

The sentiment was shared by Jack Janasiewicz, portfolio manager at Natixis Investment Managers Solutions, who believes the bounce was helped by bearish investors covering their positions after September’s deep declines.

“Toward the end of last month sentiment got pretty bearish and it doesn’t take much to spook some of these guys to come in and cover their positions,” he said.

Analysts at BofA Global Research on Tuesday pointed out that retail traders have shown few signs of capitulation, one signal they say would represent a potential market bottom. Meanwhile, the Cboe Volatility Index .VIX, known as Wall Street’s fear gauge, has not climbed to levels that have marked past turning points in past sell-offs.

“It’s not clear to me that you’ve seen panic yet,” said Ashwin Alankar, head of Global Asset Allocation at Janus Henderson Investors. “Until you see panic it’s not the best time to start adding risk to a portfolio at a rapid clip.”

The signs of softening in the labor market shown by JOLTS data, meanwhile, may not be enough for the Fed to feel comfortable pausing in its pace of rate hikes, analysts at Capital Economics wrote on Tuesday.

While the data “won’t prevent further aggressive interest rate hikes in the near term … it supports our view that inflation will drop back more quickly than Fed officials expect,” they wrote.

(Reporting by David Randall; Additional reporting by Davide Barbuscia; Editing by Ira Iosebashvili and Josie Kao)

Bear trap?

Oct 5 (Reuters) – Genuine turning point, or classic bear market rally?

World markets continue to rip higher as the dollar, bond yields and Fed interest rate expectations decline, confounding even the biggest optimists who had called for a positive start to the fourth quarter.

The strength of the turnaround suggests the turmoil in recent weeks might have been related in part to quarter-end factors. Equally, the strength of the current whoosh might simply be a bout of short covering to claw back some of this year’s losses.

According to Goldman Sachs, the median S&P 500 peak-to-trough decline in past bear markets has been 34%. That would coincide with the 3400 area from its January peak of around 4800. Friday’s low was just below 3600, down 25% from the high.

By this measure, Wall Street has further to fall before putting in the definitive bottom. It’s worth bearing in mind that bear market rallies tend to be pretty rapid, ending almost as quickly as they started.

Tuesday’s “risk-on” rally was widespread. The S&P 500 recorded its strongest two-day rise – more than 5% – since March 2020, and emerging market bonds had their best day since March this year.

US job openings data fueled hopes that the Fed will soon take its foot off the tightening pedal, Australia’s central bank only raised rates by 25 basis points and the dollar slumped more than 1% to post its longest losing streak – five days – in over a year.

It may turn out to be a bear market rally, but for now, investors are enjoying the ride.

Key developments that could provide more direction to markets on Wednesday:

Australia PMIs (September)

South Korea inflation (September)

Euro zone, UK, US PMIs (September)

US services ISM (September)

Fed’s Bostic speaks

(Reporting by Jamie NcGeever in Orlando, Fla. Editing by Josie Kao)

US yields slip after labor market data, RBA surprise

NEW YORK, Oct 4 (Reuters) – The yield on the benchmark US 10-year Treasury declined for a second straight day on Tuesday, after a surprise move by Australia’s central bank to slow its pace of rate hikes and US data showed job openings fell in August.

The Reserve Bank of Australia raised interest rates by a small-than-anticipated 25 basis points, noting they had already risen substantially but further tightening was also still necessary. Markets had been largely expecting a hike of 50 basis points.

The yield on 10-year Treasury notes was down 3.2 basis points to 3.619%.

Economic data showed job openings in the United States fell to 10.053 million in August, the most in nearly 2-1/2 years, short of the 10.775 million analysts’ estimated and a drop from the 11.17 million in July. A cooling of the labor market is one of the ingredients the US Federal Reserve is seeking to help ease inflationary pressures.

“The market is desperately looking for the end of the rate tightening cycle, or to be able to position a point on the horizon to focus on and unfortunately I don’t think the market has it,” said George Bory chief investment strategist for fixed income at Allspring Global Investments in Connecticut.

“We are looking for that and we will kind of attach some hope to almost anything that will help anchor that position, the reality is the Fed is determined, they want to get inflation down and to do that they need validation from the data.”

The yield on the 30-year bond was down 2.2 basis points at 3.684%.

Investors will see a host of data on the labor market this week, highlighted by Friday’s US payrolls report. Signs of softening in the jobs data would likely be welcomed by investors as it could raise expectations the US Federal Reserve may slow its own pace of interest rate hikes.

Recent comments from Fed officials have been in sync as they have vowed to take aggressive measures in hiking interest rates to combat rising inflation even after three straight hikes of 75 basis points.

On Tuesday, San Francisco Federal Reserve Bank President Mary Daly said the Fed needs to deliver further interest rate hikes and then keep restrictive policies in place until inflation gets back down to the central bank’s 2% target.

In addition, Fed Governor Philip Jefferson said inflation was the most serious problem the Fed is facing, and could take some time to address.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as a reliable indicator of recession when inverted, was at -48.2 basis points, up from -57.85 hit two weeks ago.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 0.6 basis points at 4.099%.

The break-even rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.334%, after closing at 2.255% on Monday.

The 10-year TIPS breakeven rate was last at 2.231%, indicating the market sees inflation averaging 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Emelia Sithole-Matarise and Chizu Nomiyama)

Dollar falls as US yields ease; euro rallies

NEW YORK/LONDON, Oct 4 (Reuters) – The dollar slid against major currencies on Tuesday as the yield on the benchmark US 10-year Treasury fell after Australia’s central bank surprised investors with a smaller-than-expected interest rate hike, with the euro climbing more than 1%.

The Australian dollar was down 0.2% at USD 0.6503, dragged down after the move by the Reserve Bank of Australia, which said rates had increased substantially in a short period of time.

The euro was last up 1.3% at USD 0.9848, recovering from its 20-year low of USD 0.9528 on Sept. 26, while sterling was up 0.8% at USD 1.1409, off a record low of USD 1.0327 also hit Sept. 26.

A calmer British government bond market was a relief for the pound after recent government-inspired turmoil. In a statement on Monday, the Bank of England reaffirmed its willingness to buy long-dated gilts and the head of Britain’s debt management office, overseeing the bond market, told Reuters in an interview the market was resilient.

The moves in the dollar and yields appear to partially reflect market participants’ views on the outlook for interest rates, some strategists said.

“We’re seeing a drop in interest rate expectations across the financial markets on the basis of Reserve Bank of Australia’s surprise smaller-than-expected hike,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“That has sort of had a canary in the coal mine effect from market participants globally. People are ratcheting down what they expect from the Federal Reserve and other central banks and that’s really compelling a drive out of the dollar and into risk sensitive assets.”

The yield on 10-year Treasury notes was down 6.6 basis points to 3.585%.

The Fed’s aggressive push to raise interest rates and the recent steady climb in US yields have helped to support the dollar’s sharp gains this year.

Elsewhere, the dollar was down 0.1% against the Japanese yen at 144.45 yen, keeping below 145 after briefly popping above that level on Monday for the first time since Japanese authorities intervened to support their currency on Sept. 22.

Japanese finance minister Shunichi Suzuki repeated on Monday that authorities stand ready for “decisive” steps in the foreign exchange market if “sharp and one-sided” yen moves persisted.

(Additional reporting by Kevin Buckland in Toyko and Alun John in London; Editing by Chizu Nomiyama and Andrea Ricci)

Gold hits 3-week high as US dollar, bond yields fall

Oct 4 (Reuters) – Gold prices rose over 1% to a three-week peak on Tuesday, as the dollar and US Treasury yields retreated, with investors hoping that the US Federal Reserve could adopt a less aggressive approach to rate hikes.

Spot gold gained 1.5% to USD 1,723.99 per ounce by 2:17 p.m. EDT (1817 GMT), its highest since Sept. 13.

US gold futures climbed 1.7% to USD 1,730.50.

Benchmark US 10-year Treasury yields eased, while the dollar extended its decline, making gold cheaper for other currency holders.

“The market is kind of pricing in that the Fed is going to back off here a little bit and that’s why you’re seeing this move back up in gold and silver,” said Bob Haberkorn, senior market strategist at RJO Futures.

Looking ahead, US non-farm payrolls data due on Friday could offer more clarity on the Fed’s policy tightening.

“If the jobs data comes out weaker-than-expected, gold will rally. If it comes out much stronger, the market might interpret that as well, the Fed can keep going here with rates,” Haberkorn added.

Gold registered its biggest daily percentage gain since March on Monday. However, rising US rates increase the opportunity cost of holding zero-yield bullion.

“Gold is not out of the woods yet, but at least we’ve seen a very strong rebound. The first move has been driven by short covering,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Gold-supplying banks have cut back shipments to India ahead of major festivals in favour of focusing on China, Turkey, and other markets where better premiums are offered, three bank officials and two vault operators told Reuters.

Spot silver rose 1.2% to USD 21.01 per ounce, a more than three-month high, following its best day since 2008 in the previous session.

Platinum gained 2.8% to USD 928.00, and palladium XPD= climbed 3.9% to a five-month high of USD 2,306.71.

(Reporting by Bharat Govind Gautam and Brijesh Patel in Bengaluru; Editing by Uttaresh V, Shailesh Kuber and Krishna Chandra Eluri)

Philippine central bank says ready to manage market disruption as peso slumps

MANILA, Oct 4 (Reuters) – The Philippine central bank said on Tuesday it was taking steps to manage any disruption in the financial market, and urged participants not to take advantage of a peso currency hovering at record lows against the dollar.

The peso closed at a record 59 to the greenback on Monday, taking its year-to-date decline to 13%, the most in Southeast Asia.

Policymakers have attributed the decline mainly to the dollar’s strength.

“We ask those who have the means not to take undue advantage of changing market conditions,” the Bangko Sentral ng Pilipinas said in a statement.

“This does not help the Philippine peso; it does not help the Philippines. What we can do is to bring all transactions into an organised and accessible formal market that offers consumer protection.”

(Reporting by Karen Lema, Editing by Ed Davies, Martin Petty)

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