Another day, another article about how low the yields in high-yield bonds have reached. This time in FT, which cites the recent 5-year bond issue by Case New Holland (CNH) at a yield of 3.625%. The article discusses the disproportionate interest for somewhat better-rated high-yield bonds; in this case, the CNH bonds are rated “BB” by S&P and “Ba2” by Moody’s – pretty solid ratings for a high-yield company.
Looking at this from an Asian perspective, we see the same phenomenon here of investors’ chasing better-rated, “BB” category high-yield bonds. But the yields are still higher in Asia. For example, a 2018 bond from Country Garden, an established Chinese property name in Asian credit, rated one notch lower, is trading at over 7%. Citic Pacific 2018, rated one notch higher, gives you over 5%. Zoomlion 2017, also rated a notch higher than CNH, gives just over 5% yield. Adaro 2019, an Indonesian coal company with a lot of coal under the ground, also rated one notch higher than CNH, gives nearly 5.75%. In general, it is possible to easily find 5-year bonds in Asiafor “BB” rated companies with over 5% yield.
Then the question arises: is there any other reason for Asian bonds to provide higher yields? One possible answer is liquidity. The other is unforeseen risks of corporate governance in Asia, which have proved to be the bane of investors in some Asian companies such as the notorious Sinoforest.
But with careful picking of names, it is possible to choose companies with solid history, state backing or good assets. It is also possible for experienced Asian market professionals to identify those bonds with better liquidity.
Make no mistake: Asian yields, for both investment-grade and high-yield bonds, have also tightened a lot. But they still provide valuable pick-up over US bonds.
Looking at this from an Asian perspective, we see the same phenomenon here of investors’ chasing better-rated, “BB” category high-yield bonds. But the yields are still higher in Asia. For example, a 2018 bond from Country Garden, an established Chinese property name in Asian credit, rated one notch lower, is trading at over 7%. Citic Pacific 2018, rated one notch higher, gives you over 5%. Zoomlion 2017, also rated a notch higher than CNH, gives just over 5% yield. Adaro 2019, an Indonesian coal company with a lot of coal under the ground, also rated one notch higher than CNH, gives nearly 5.75%. In general, it is possible to easily find 5-year bonds in Asiafor “BB” rated companies with over 5% yield.
Then the question arises: is there any other reason for Asian bonds to provide higher yields? One possible answer is liquidity. The other is unforeseen risks of corporate governance in Asia, which have proved to be the bane of investors in some Asian companies such as the notorious Sinoforest.
But with careful picking of names, it is possible to choose companies with solid history, state backing or good assets. It is also possible for experienced Asian market professionals to identify those bonds with better liquidity.
Make no mistake: Asian yields, for both investment-grade and high-yield bonds, have also tightened a lot. But they still provide valuable pick-up over US bonds.
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