By Umesh Desai
HONG KONG, Dec 23 (Reuters) - Asia had a record year in 2013for dollar, euro and yen bond issuance with borrowers scramblingto raise debt and anticipating a rise in global interest rates.
The record volumes came despite volatility in U.S.Treasuries, which serve as benchmarks for pricing these bonds. That volatility, and doubts about the U.S. Federal Reserve's$85 billion a month bond buying programme, prolonged the dealexecution cycle as windows of opportunity opened and shutrapidly.
The volatility however, did not prevent issuance hitting anew high with issuers determined to take advantage ofrock-bottom interest rates and investors hungry for risingyields on investments.
Deal volumes rose to a peak of $143.8 billion in 2013,eclipsing the previous high of $133.8 billion last year, withHSBC and Deutsche Bank leading the league tables.
Asia's debt demand is expected to moderate, with the U.S.central bank's plan to trim its monthly purchases among the keyfactors behind the likely pullback.
"It will be difficult for 2014 to register another recordyear for new issuance," said Thomas Kwan, Hong Kong-based headof fixed income at Harvest Global Investments, who expectsoutflows in retail funds to continue in 2014, reversing a trendfrom early last year.
In the debt capital markets league table standings, HSBC retained the top spot in 2013. Among the key deals washelping the Asian Development Bank raise $2.5 billion through athree-year bond. Deutsche Bank jumped from fourth to second place, helped by such deals as Indonesia's $1.5 billionsukuk. Coming in third was Citigroup
One factor that Asia's debt bankers hope will override theU.S. taper is the need for Asian corporates to repay bondsissued five years ago when bumper volumes of debt were raised. The five-year tenor is the most-preferred debt maturity amongAsian issuers.
According to Societe Generale, Asian issuers are faced witha record $43 billion in redemptions next year, which compareswith this year's figure of less than $25 billion. The sustainedyield gap between dollar and domestic currency assets would alsoprovide the impetus to new borrowers.
But waning volumes of liquidity and the availability ofother funding options lead most in the Asian debt markets topredict a slowdown.
"Overall we see a marginal pullback in supply as thebank-loan market has re-emerged as a highly competitivealternative for issuers," said Jacob Gearhart, Deutsche Bank'sSingapore-based head of syndicate desk.
VOLATILE TREASURIES
Volatility in U.S. Treasuries, with the benchmark 10-yearyield swinging between a low of 1.614 percent in May to morethan a two-year high of 3.007 percent in September, resulted inlonger execution time for primary deals in Asian bonds thisyear.
"We had a lot of investor marketing and assessment ofmarkets. One had to be nimble as windows of opportunity openedand closed quickly. Deal cycles were longer this year," saidDevesh Ashra, Hong Kong-based bond syndicate banker with BofAMerrill Lynch.
But that did not deter a jump in the number of transactionswith 286 deals completed in 2013, up from 253 a year ago andboosting the 7.5 percent volume growth, according to ThomsonReuters data.
Headwinds are swirling, however, as financial markets adjustto lower levels of quantitative easing and the impact this willhave on markets across the globe.
"Retail investors will continue to allocate money to fixedincome, but our sense is that the trend favours equities andthat will definitely have an impact on what bond deals get donein 2014," Deutsche Bank's Gearhart said.
HSBC Holdings (HSBA)