Pacific Investment Management Co., which runs the world’s biggest bond fund, sees value in high- grade notes sold by Asian companies as low U.S. interest rates persist.
Five-year bonds yielding about 3 percent and rated BBB, the lowest tier of investment-grade securities, are “attractive investments,” according to Ramin Toloui, the money manager’s Singapore-based global co-head of emerging markets portfolio management. Interest rates are likely to stay low for the next couple of years, he said.
The region’s issuers sold $38.8 billion of U.S. dollar- denominated bonds rated BBB or the equivalent by any of the three major risk assessors this year, 32 percent of total sales in the currency, data compiled by Bloomberg show. Asian companies’ dollar debt has lost 0.6 percent this month, underperforming global corporates, which lost 0.4 percent, according to Bank of America Merrill Lynch indexes. Securities with BBB ratings performed even worse, losing 0.9 percent, the indexes show.
“One of the most straightforward ways of taking advantage of this low-yielding environment is buying high-quality bonds that are short dated,” Toloui said in an interview in Hong Kong last week. Buying high-yield debt, “it’s more difficult to find value and find places where you’re getting appropriately compensated for the inherent risks.”
Portfolio Rebalancing
Securities sold by Kasikornbank Pcl, a Thai lender graded BBB+ by Standard & Poor’s, traded as high as 104.4 cents on the dollar this year before falling to 97.7 cents on June 26, following indications a week earlier the U.S. Federal Reserve planned to start winding back its unprecedented stimulus program. The $500 million of 3 percent 2018 notes were trading at 101 cents on the dollar as of 1:10 p.m. in Hong Kong, Bloomberg-compiled prices show.
Investors pulled $1.83 billion out of emerging-market bonds in the week to Nov. 13, with $325 million exiting positions in Asia’s developing economies, Australia & New Zealand Banking Group Ltd. wrote in a note last week, citing EPFR Global data.
Funds flowed out of the region after the U.S reported better-than-expected non-farm payroll figures, increasing the likelihood that the country’s central bank will taper bond purchases as soon as December, according to ANZ.
Asian Growth
Emerging-market bonds are however still supported by the longer-term rebalancing of portfolios away from established economies, Pimco’s Toloui said. “The short-term reaction to Fed policy is certainly the critical driver of asset prices in the near term, but it’s not the only driver over a longer period of time,” he said.