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Uneasy days in Asian debt

Asia’s debt markets have soared and spreads over US and European markets have all but disappeared. Meanwhile, risk appetite continues to rise as new products become increasingly marginal. Asia’s debt bankers have much to ponder. Chris Leahy reports.

ONE CREDIT, THE Republic of Indonesia’s 30-year bond, aptly sums up the status of Asia’s debt market. It is trading at around 210 basis points over the equivalent US benchmark, so investors are faced with a choice: place funds at three-month Libor or buy 30-year paper from Indonesia and earn an extra 150 basis points for their trouble. It is a simple decision to make, of course, but investors are falling over each other to make the wrong choice.

"You’re getting 1.5% uplift from three-month bank money to 30-year Indonesian risk," says Stephen Williams, co-head of global capital markets, Asia-Pacific, at HSBC. "It’s probably not where it should be."

That’s quite an understatement, but here is another anomaly. In February, the State Bank of India issued tier 1 capital in the form of a $400 million perpetual non-call 10.25-year bond. Paying a coupon of 6.439%, the bonds priced inside the prevailing price for a similar issue by Dresdner Bank.

At a recent global conference on high-yield debt, the head of Asian leveraged finance for a US bulge-bracket bank stood up with trepidation to make his presentation with one slide entitled Why it might be different this time.

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