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Corporate Japanese Bonds Priced For Default
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Posted by ian 49 days ago (www.bloomberg.com). Views: 43
Tags: japan credit crisis economy |
| Related Tags: housing bubble economics banks recession stock market gold finance |
Corporate Japan is collapsing.
Nov. 20 (Bloomberg) -- Default protection costs on Japanese corporate bonds soared to a record on concern a global recession and stock market slumps are damaging company earnings and weakening financial institutions.
Credit-default swaps on Sumitomo Mitsui Financial Group Inc.'s main banking unit jumped on speculation losses on equity investments may exceed fresh capital the company plans to raise from investors. Exports, the main engine of Japan's growth, fell last month at the fastest pace in almost seven years, a Finance Ministry report showed today. Australia's benchmark for bond risk neared a record.
``Anything's possible in this market and the danger is that it'll go wider,'' said Mark Bayley, a director of credit at ABN Amro Holding NV in Sydney. ``You're seeing sellers of risk and very few buyers. The sellers are becoming more stressed and willing to accept very wide spread levels for corporate bonds.''
The Markit iTraxx Japan index of credit-default swaps traded 38 basis points higher at 333 as of 3:18 p.m. in Tokyo, exceeding its Oct. 27 record of 330, according to Credit Suisse Group AG. The iTraxx Australia index climbed 37.5 basis points to 355, Citigroup Inc. data show. Asia's investment-grade benchmark rose 35 basis points to 445, according to BNP Paribas SA.
Central bank injections into money markets today failed to temper increases in default swap prices, which climb as perceptions of credit quality deteriorate. The Hong Kong Monetary Authority added HK$2.33 billion ($300 million) to the banking system while the Reserve Bank of Australia added A$580 million ($368 million).
Risk Aversion
``You're not seeing the additional liquidity encourage people to take risk,'' said Ken Hanton, a credit analyst with National Australia Bank Ltd. in Sydney.
The MSCI Asia-Pacific Index slumped 4.9 percent to 75.35 at 2:58 p.m. in Tokyo, extending this week's decline to 9.3 percent. Thirteen stocks fell for each that rose on the measure.
Sumitomo Mitsui default swaps soared 40 basis points to 263 after Japan's third-largest bank by revenue said yesterday it plans to raise capital by selling preferred shares. The nation's banks are facing losses as this year's 50 percent drop in the Nikkei 225 Stock Average erodes the value of their investments.
The Tokyo-based financial institution may raise as much as 400 billion yen ($4.2 billion), a person familiar with the plan said, declining to be identified. Mitsubishi UFJ Financial Group Inc., Japan's biggest bank, plans to sell more than 900 billion yen of shares and Mizuho Financial Group Inc. has flagged the sale of as much as 300 billion yen in preferred securities.
`Difficult to be Optimistic'
``It's difficult to be optimistic about the prospect of Japan at the moment,'' said Jason Rogers, a Singapore-based credit analyst with Barclays Capital. ``It is catching up with Asia in terms of getting hammered by risk aversion.''
Credit-default swaps on Asian government debt also climbed after U.S. benchmarks of bond risk rose to records. Default swaps on the Philippine government's external debt climbed 60 basis points to 550, and contracts on South Korea advanced 40 basis points to 440, BNP data show.
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