Higher Yields To Compound Regional Downturn

BMI View: The surge in bond yields across the region is coming at a time of economic weakness, which is a dangerous combination. From Indonesia to India to China, corporates are feeling the pinch of higher borrowing costs amid already weak macroeconomic trends. The threat of a vicious cycle taking hold, where rising corporate bond yields weaken economic growth, leading to further increases in corporate bond yields, is looking like a distinct possibility.

In December last year, with the region looking poised for an acceleration in economic activity, we cautioned that a number of unforeseen risks could impede economic growth. Among the risks, we highlighted the potential for a reversal in sovereign and corporate bond yields across the region following a record plunge in borrowing costs.

"…credit default swap markets across the region are trading near record lows as the suppression of global volatility and low interest rates have encouraged a flood of capital into Asian bond markets… any hiccup in global financial markets would leave Asian markets extremely at risk in terms of rising borrowing costs"

4% Corporate Yields Not Likely To Return
Asia - Corporate Bond Index Yield, %

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This article is tagged to:
Sector: Country Risk
Geography: Asia, Asia, Europe, Germany, Spain, France, United Kingdom, Italy, Asia, Asia

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