Goldman upbeat on Asian junk bond returns

Bloomberg

Goldman Sachs Asset Management sees an opportunity in Asia’s junk dollar bonds, which lag the US despite a recent rally.

Investors are pouring money into riskier debt globally, after the US election fueled expectations for a split government that would keep yields low longer and following progress toward a Covid-19 vaccine.

Yields on Asian speculativegrade notes dropped for seven straight days through Tuesday but are only at the lowest in about a month, while those on US peers have slid to a record low.

“We continue to view the return potential in Asia highyield, in an otherwise low-rate environment, as being attractive,” said Salman Niaz, head of Asian credit. The firm supervised more than $1.8 trillion of assets globally as of September 30.

Junk bonds globally have rallied this year after unprecedented central bank stimulus to counter the effects of the pandemic. But the gains have lagged in Asia, where monetary authorities stopped short of buying such debt as the US Federal Reserve started doing earlier this year. Investors have been more cautious on the region’s riskier issuers without such targeted support. Jitters over large borrowers including commodities firm Vedanta Resources Ltd, property giant China Evergrande Group and Sri Lanka have also given some buyers pause.

Average yields in Asia are around 7.7%, compared with about 4.7% for US high-yield corporate bonds, according to Bloomberg Barclays indexes. Adding to the appeal, the region’s junk bond market has less exposure to energy and Covid-19 related sectors compared to the US, according to Niaz.

Asian high-yield dollar securities are trading at levels that suggest the percentage of them that may default would be in the midto-high single digits, according to the asset manager. But the average default rate for the notes in past years has been only mid-1%.