Sales of junk bonds in Asia are on course for a record-breaking quarter as a broad stock market rally and investor expectations for fewer interest rate rises have boosted risk appetite.
Companies in Asia have sold $19.8 billion in high-yield - or junk-rated - bonds so far, making it the best start to a year and putting this quarter on track to be the busiest on record, according to Refinitiv data going back to the 1970s.
That marks a 56 percent increase year-on-year, driven in large part by bumper bond sales by Chinese property developers, who have raised $13 billion so far, an 189 percent increase year-on-year.
The record issuance could alleviate some of the concerns building last year over the refinancing needs of Asian companies which must pay off or refinance $205.6 billion in offshore bonds maturing this year, according to Refinitiv.
"We see stronger demand for high-yield bonds in the primary market since the beginning of 2019, and we followed the market trends and grasped the opportunities to issue three tranches of US dollar senior notes this year," said an official at Chinese property developer Yuzhou Properties, which raised $500 million in February.
The high-yield rally has allowed the return of some riskier names, like unrated property developer Kaisa Group - the first Chinese developer to default on offshore bonds in 2015 - and Dalian Wanda Commercial Management Group, part of debt-laden conglomerate Dalian Wanda Group.
Kaisa raised $400 million in two-year bonds with a coupon of 11.75 percent in its biggest offshore deal since 2017, while Dalian Wanda Commercial Management last week raised $300 million in 363-day bonds with a coupon of 6.25 percent.
The high-yield sector ended 2018 bruised as investors shied away from risky assets amid geopolitical uncertainty and concerns over China's slowing growth, as well as the likely pace of future US interest rate rises.
But concerns over rates have been tempered by a more dovish stance from the US Federal Reserve, while Asian markets have had a blistering start to the year, with China's blue-chip CSI300 up 30 percent so far and Hong Kong's benchmark Hang Seng index rising 11 percent.
"There's been a fundamental change in expectation on rates ... that has an impact on the US dollar and the US dollar's impact on emerging markets has always been very important," said Derek Armstrong, head of Asia Pacific debt capital markets at Credit Suisse.
Armstrong said emerging market portfolios had seen fund inflows, as opposed to the heavy outflows that marked 2018.
Investors' renewed appetite for high-yield bonds has prompted some issuers to start selling paper with longer tenors.
In 2018 junk-rated companies struggled to sell bonds with tenors longer than two years, but this year has already seen some four- and five-year deals.
In February property developer KWG Group Holdings sold a $350 million 4.5-year bond with a coupon of 7.875 percent.
That is in stark contrast to last year when China Evergrande Group was offering coupons of 11 percent on two-year paper.
"There's a sense that investors are opening up to longer tenors for China property bonds to manage the high-frequency maturity profile issuers are building up two to three years from now,” said Rishi Jalan, co-head of debt syndicate for Asia for Citigroup.