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Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Risk-on sentiment resulted in more spread tightening than widening in Asia’s US$-denominated bank bonds (x-Japan) during the month of November. In fact, only 4 securities widened in G-Spread terms out of the 100 bonds that we track in the region. Meanwhile, the largest widening was only 15 basis points (bps) month-on-month.India-headquartered bank bonds led in terms of spread tightening over November and dominate our top 10 list. Amongst the India-headquartered banks, several non-bank finance companies (NBFCs) led advances. Relative to year-end spread levels, there is limited upside remaining amongst the top 10 performers of November.In a positive sign, from a momentum perspective, the positive spread movement amongst India’s NBFCs was continuous throughout November. Coronavirus vaccine news, a Goldilocks US election outcome, and the Janet Yellen effect propelled riskier asset prices higher in most markets and India was no exception.   While the trend is your friend, ordinarily thin trading markets could meet concerns that economic recovery is fully priced, and profit-taking may ensue during December. In addition, there is the risk that the market has gotten ahead of itself as bank management’s loss expectations are yet to be tested. Post-COVID-19, India’s operating environment starts from an already high level of non-performing assets and each bank’s loan loss predictive ability has significant room for improvement. The same could be said for the other outperforming bank bonds in our top 10 list.

Risk-on sentiment resulted in more spread tightening than widening in Asia’s US$-denominated bank bonds (x-Japan) during the month of November. In fact, only 4 securities widened in G-Spread terms out of the 100 bonds that we track in the region. Meanwhile, the largest widening was only 15 basis points (bps) month-on-month.India-headquartered bank bonds led in terms of spread tightening over November and dominate our top 10 list. Amongst the India-headquartered banks, several non-bank finance companies (NBFCs) led advances. Relative to year-end spread levels, there is limited upside remaining amongst the top 10 performers of November.In a positive sign, from a momentum perspective, the positive spread movement amongst India’s NBFCs was continuous throughout November. Coronavirus vaccine news, a Goldilocks US election outcome, and the Janet Yellen effect propelled riskier asset prices higher in most markets and India was no exception.   While the trend is your friend, ordinarily thin trading markets could meet concerns that economic recovery is fully priced, and profit-taking may ensue during December. In addition, there is the risk that the market has gotten ahead of itself as bank management’s loss expectations are yet to be tested. Post-COVID-19, India’s operating environment starts from an already high level of non-performing assets and each bank’s loan loss predictive ability has significant room for improvement. The same could be said for the other outperforming bank bonds in our top 10 list.

Bank Credit Compass: Asia’s November Performance and December Expectations

Asia High Yield Bond Index

Bank Credit Compass: Asia’s November Performance and December Expectations