Asia-Pacific banks' bond issuance remained subdued in April, as rising interest rates across the world and concerns over the negative impacts of China's zero-COVID policies continue to create uncertainties for both issuers and investors.
Japanese banks Mitsubishi UFJ Financial Group Inc. and Japan Bank for International Cooperation were the only bond issuers among Asia-Pacific banks in April, raising an aggregate $3.50 billion, according to data compiled by S&P Global Market Intelligence. This compares to a total of $3.40 billion of bonds issued in March and $25.45 billion in April 2021.
Looking ahead, analysts expect some improvement in bank bond issuance in the region.
"We expect to see some rebound in [Asia-Pacific] bond issuance after the immediate double shock of the [Federal Reserve]'s hawkish interest rate pivot and China's new zero-COVID lockdown," said Ben Laidler, global market strategist at social trading and multi-asset investment company eToro.
The slowdown in bond issuance came as central banks, including the Fed, started raising interest rates to control rising inflation after keeping rates low to support economies from disruptions caused by the COVID-19 pandemic. China's central bank, on the other hand, is implementing easing measures as the country faces slowing economic growth and a resurgent COVID-19. Authorities have put in place strict lockdowns across the country as part of the government's zero-COVID policy, further confounding the outlook for growth in the world's second-biggest economy.
"China's continuing shutdowns of cities and towns, notably Shanghai, have hit demand and business operations. This has led us to reduce our base-case 2022 GDP growth forecast for China to 4.2% from 4.9%," Louis Kuijs, S&P Global Ratings' Asia-Pacific chief economist, said in a May 16 report. "In the event that restrictions on people mobility are extended to another economically important city, the growth rate could fall as low as 3.5%."
Demand for US dollar bonds
Laidler expects global demand for U.S. dollar-denominated bonds issued in Asia to remain resilient even as the divergence between China and the rest of Asia on monetary policies will grow further. Such bonds also have a generally shorter duration than in the U.S., higher yields and strong fundamentals, the economist added.
Bonds issued by both Mitsubishi UFJ Financial and Japan Bank for International Cooperation in April were denominated in U.S. dollars. Mitsubishi UFJ Financial raised $2 billion in nonconvertible total loss-absorbing capacity bonds, while Japan Bank for International Cooperation raised $1.5 billion in its nonconvertible bond issue.
April's capital raisings also included Nanyang Commercial Bank Ltd.'s issuance of $650 million of convertible bonds, the data shows.