* Asian issuers rush to issue bonds amid rally
* Another record year for dollar bonds in sight
* Gains raise bubble questions
By Christopher Langner
SINGAPORE, Sept 19 (IFR) - The Fed chairman lived up to his
nickname of Helicopter Ben this week and walked out of the FOMC
meeting saying the central bank will continue to buy US$85bn a
month of Treasuries and mortgage-backed securities.
The unexpected delay in the tapering of monetary stimulus
prompted credit markets to gap in. The yield on the 10-year US
Treasury dropped 15bp right after Bernanke spoke, and Asian
dollar bonds not only followed, but their spreads tightened
5bp-10bp more today.
The moves had bankers scrambling to turn more deals live
before the Fed reverses its stance.
On Thursday alone, three mandates were announced, two of
them from Chinese state-owned companies, which analysts expect
to come in size. In fact, talk was that the more than 20 issuers
that have met investors in the past couple of months without
printing any bonds afterwards will be elbowing for room with a
swathe of other companies.
"The party is back on, at least for now," said one banker in
Next week, bankers have predicted there could be as many as
seven transactions worth more than US$5bn - maybe a lot more.
Adding all the deals that have already been announced, there is
a potential pipeline of at least US$15bn more.
Issuance in dollars from Asia excluding Japan and Australia
has already reached US$102bn. If all the issuance that bankers
expect to push through gets done, the region may even beat last
year's US$124.7bn record before December.
The hurdle, said one analyst, is if accounts run out of
money to invest. Funds are still ailing from losses incurred
during the summer, and while cash rates are in the high single
digits, he said, there is only so much money to invest.
Besides, bond funds across the globe have seen very high
redemptions as investors realized that a 30-year bull market for
Treasuries - and fixed income in general - had reached an end.
Given the price action seen on Thursday after the FOMC
announcement, though, investors are again ignoring the end of
the bull market for bonds. "The market had priced in some
tapering, so there has been a sharp retracement now that it did
not happen," said one credit analyst in Singapore.
"It was very binary, if we had a bad Fed meeting, I was
already planning to take a week's vacation," said one banker.
"Now I don't even think I will be able to see my wife this
If investors are again betting on lower rates, bankers and
issuers seem to understand that the current rock-bottom yields
are not going to last much longer. "The genie is out of the
bottle, now we know that the tapering will happen," said the
This certainty of higher rates, combined with the temporary
relief from their postponement, is acting as an additional
incentive to bring dollar deals at a fast clip.
Investors, however, may want to brush off the dust from a
research paper published in 2003 by Princeton scholars Dilip
Abreu and Markus K. Brunnermeier entitled "Bubbles and Crashes".
The researchers conclude that: "We suppose that rational
arbitrageurs understand that the market will eventually collapse
but meanwhile would like to ride the bubble as it continues to
grow and generate high returns. Ideally, they would like to exit
the market just prior to the crash."
In other words, any hint that there is further to go will
prompt even rational investors to continue investing.
The trouble, as Brunnermeier and Abreu conclude, is that:
"Market timing is a difficult task. Our arbitrageurs realize
that they will, for a variety of reasons, come up with different
solutions to this optimal timing problem. This dispersion of
exit strategies and the consequent lack of synchronization are
precisely what permit the bubble to grow, despite the fact that
the bubble bursts as soon as sufficient mass of traders sells
The timing, therefore, is ripe for issuers. They had better
make the most of the conditions while they can.
(Reporting By Christopher Langner, editing by Julian Baker)