Asian Junk Bond Market Exposes Cracks

Credit risk rising for companies with lower credit quality as developing economies in East Asia face slower growth.

Asia’s junk bond returns are lagging behind investment-grade debt like never before as China’s weakest projected growth since 1990 and escalating leverage expose cracks across the region’s economies.

Speculative-grade notes denominated in dollars have gained 2.76 percent this year through May 9, 1.95 percentage points less than high-grade bonds, according to index data compiled by JPMorgan Chase & Co. The underperformance is the worst over the same period since at least 2005. Globally, returns were about even at 4.1 percent, Bloomberg indexes show.

Borrowers from Asia outside Japan issued $36.3 billion of U.S. dollar notes in April, exceeding January 2013 as the busiest month on record by 60 percent, Bloomberg data show.

China Petrochemical Corp., known as Sinopec Group, raised $5 billion in the region’s biggest dollar-bond offering in a decade, while Cnooc Ltd., China’s biggest offshore energy explorer, issued $4 billion of debt. Both are investment grade.

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