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Risks are rising for Asia's high-yield bond market

Publication Date: 21 Jan 2019 - By ReachX Team By ReachX T.

Macro Multi Asset Convertibles Australia & Oceania China Asia ex-China


Risk will rise in 2019 for the credit quality of Asia's high-yield bond market, given that the liquidity positions of issuers are weakening, according to a leading rating agency.

In a recent note to clients, Moody’s notes that difficult market conditions were driving higher pricing and shorter tenors.

"Moody's proprietary indicators for credit quality including our Asian Liquidity Stress Indicator (ALSI) -- all weakened in Q4 2018," says Annalisa DiChiara, Vice President and Senior Credit Officer at Moody's.

"Furthermore, rated high-yield bond issuance in Asia in 2018 was largely shut to all but the China property sector, and also showed higher coupon rates and shorter tenors as the credit environment worsened.”

Moody's notes that the proportion of companies rated B3 and below rose to 15.7% in Q4 from 13.6% in Q3. At the same time, the ALSI – which rises when liquidity weakens – reached an all-time high of 38.6% in December.

Despite these weakening metrics, Moody's believes that refinancing risks for the high-yield sector remain manageable, and – in the absence of exogenous shocks – the market is likely to absorb upcoming maturities. 

Moody's Asian high-yield portfolio covered 166 rated companies with $89.6bn of rated debt outstanding at 30 December 2018.


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