Asia-Pacific Bond Risk Rises, Credit-Default Swap Prices Show. By Yusuke Miyazawa - 2012-06-29T02:03:48Z. The cost of insuring corporate and sovereign bonds in Asia and Australia from default climbed, according to traders of credit-default swaps. Asia-Pacific Bond Risk Rises, Credit-Default Swap Prices Show
texasenterprise.org By allowing investors to take out insurance on others bonds, Credit Default Swaps have gotten a bad reputation for promoting speculation on the misfortune of others. McCombs Senior Lecturer of Finance Sandy Leeds explains how this practice has also been blamed for setting up the financial crisis.
http://leafgardenpress.com/ LINGO: Credit Default Swaps
The risk of default by State Bank of India is falling more than similar BRIC nation benchmarks as the company, a proxy for the government in the global bond market, sells debt in Europe for the first time in five years.
Credit-default swaps on SBI, the nation's largest lender, dropped 32 basis points over the past six months, data compiled by Bloomberg show. That outpaced the 27 basis point decline for Bank of China Ltd., the largest in China, and compares with a 14 basis-point increase for Sberbank, the biggest in Russia. Bond risk for sovereign debt in Brazil, whose banks have no similar swaps, fell 23 basis points.
Stronger-than-forecast earnings in India are bolstering investor appetite for SBI's 500 million euro ($ 680 million) bond sale, even as concern that Ireland's banking industry needs a further bailout pushes up global yields, according to UBS AG.
Net income at 17 of the 30 companies in India's benchmark Sensitive Index exceeded analyst estimates in the quarter ended Sept. 30, rising an average 8 percent from a year earlier, data compiled by Bloomberg show."Improved corporate earnings in the September quarter, which met analysts' expectations, instill confidence in investors to buy Indian debt," Ajay Mahajan, managing director at UBS in Mumbai, said in an interview on Nov. 16. "The risk of a loan delinquency blow-out in India is very low."
Improved Earnings
The Reserve Bank of India said in a report on Nov. 8 that non-performing assets of the nation's banks, after deducting bad-loan provisions, were 1.1 percent of the total as of March 31. SBI has reduced debt due this year to about 20 billion rupees ($ 440 million), from 60 billion rupees on March 31. It increased borrowings that mature in 2015 to 110 billion rupees, from 60 billion rupees, according to data compiled by Bloomberg.
Total profit for Sensex companies rebounded last quarter after declining 1.8 percent from a year earlier in the three months to June 30. ICICI Bank Ltd., India's second-biggest lender, said last month that second-quarter profit climbed 19 percent, as loans rose for the first time in two years.
State-run Indian Oil Corp. said Nov. 13 that net income rose more than 18-fold. SBI's earnings were little changed from a year earlier at 25 billion rupees, largely because of stricter central bank provisioning rules.
"We should see an 18 percent to 20 percent earnings growth in Sensex companies in the year ending March 2011," said Ravi Gopalakrishnan, chief investment officer for equities at Pramerica Asset Managers Pvt. The firm is the local unit of Prudential International Investments Advisers LLC., which manages $ 750 billion in assets globally.
European Crisis
State Bank's credit-default swaps jumped 13 basis points last week, the largest advance since May 21, as concern intensified that the debt crisis in Ireland and Greece was worsening. The contracts climbed four basis points, or 0.04 percentage point, this week to 169 basis points yesterday. That level compares with 129 for Bank of China, 197 for Sberbank and 110 for Brazil's government.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point equals $ 1,000 a year on a contract protecting $ 10 million of debt for five years.
"We're now in a situation where some Indian banks are offering some value relative to other banks in the region," said Philippe Petit, senior investment manager in Singapore at Pictet Asset Management, in an interview on Nov. 16. SBI "is considered a quasi sovereign" and its default-swap price is likely to be "rangebound" depending on global risk appetite, said Petit, whose firm oversees more than $ 17 billion of emerging-market debt.
Rupee, Yields
SBI plans to start its euro debt sale next week, Deputy Managing Director Pratip Chaudhuri said in an interview Nov. 15. The lender sold $ 1 billion of bonds in July. The yield on the 4.5 percent notes, which mature 2015, has fallen to within 225 basis points of government debt rates from 277 on July 23, Bloomberg data show.
This year's 2.3 percent advance in the rupee against the dollar and 8.4 percent gain versus the euro makes it cheaper for companies that raise funds in the currencies to repay loans. India's rupee weakened 0.4 percent today to 45.47 per dollar. The domestic markets were closed yesterday for a public holiday.
Local borrowing costs have become more expensive. The yield on India's benchmark 10-year rupee bond fell two basis points to 8.05 percent today, for a year-to-date increase of 46 basis points. The difference between the yield and that of similar maturity U.S. Treasuries was 518 basis points, shrinking from the high this year of 567 on Oct. 20.
Corporate Risk
The difference in yield between India's top-rated five-year rupee company debt and similar-maturity government bonds narrowed to 65.3 basis points on Nov. 16, from 68.2. The gap has shrunk from 86 at the start of the year.
Crisil Ltd., the Indian unit of Standard & Poor's, raised the ratings of 253 local borrowers in the six months ended Sept. 30, the most since it started business in 1987, it said on Oct. 20. The company downgraded 111 borrowers.
"Most of our rating actions for companies this year have been upgrades," Mehul P. Sukkawala, a Mumbai-based credit analyst at S&P, said in an interview on Nov. 16. "An improved global economic environment has helped companies."
More Default Swaps Improving Faster for SBI Than BRICs: India Credit Issues
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