Credit risk surged in Asia as Republican Donald Trump won the US presidential election.
The cost of insuring corporate and sovereign bonds in Asia jumped, with the Markit iTraxx Asia index of credit-default swaps rising 7 basis points to 122 basis points as of 11:34 a.m. in Hong Kong, prices from Nomura Holdings Inc. show. That leaves it set for the biggest daily increase in two months, according to data provider CMA. Default risk also surged for Chinese sovereign debt and Australian companies.
“High-yield bonds may fall and US Treasuries may rise,” said Li Yaozhu, and overseas bond fund manager at GF Fund Management Co. in Guangzhou.
Trump’s edge sent shock waves through financial markets after most preelection polls showed Hillary Clinton’s campaign on course for victory.
Trump, a real-estate magnate and reality television star, has vowed to renegotiate trade deals, punish China for allegedly unfair trade practices and force Mexico to pay for a wall along its border.
Brexit echo
The Federal Reserve may delay any rate hike in December if there is a tightening of financial conditions, according to Robert Tipp, chief investment strategist in Newark, New Jersey, for the fixed-income division of Prudential Financial Inc.
He said polls had underestimated the chance of a Trump victory because many people may have not declared their intention to vote for the candidate, just as many surveys had mistakenly forecast the outcome of the UK’s referendum to leave the
European Union.
“There are similar elements with the Brexit vote,” Tipp said.
CDS for China increased 10 basis points, the sharpest jump since June, to 117.5, according to prices from Australia & New Zealand Banking Group Ltd. and CMA.
The Markit iTraxx Australia index jumped 7 basis points to 110.5 basis points in Sydney, according to Nomura prices.
The benchmark was last that high about three months ago, according to CMA.
The extra yield that investors demand over Treasuries rose on some Asian corporate notes, traders said.
The premium on the dollar bonds due in 2025 of China National Offshore Oil Corp. increased the most in about six weeks, rising 5 basis points to 153 basis points, according to traders who asked not to be identified because they’re not authorized to speak on the matter.
The spread on the 2024 notes of Bank of China Ltd. also jumped about 5 basis points, they said.
A Trump win would spark “a flight to quality, which means government bonds and high quality assets will outperform,” Bryan Collins, portfolio manager for fixed income at Fidelity International in Hong Kong, said in a video interview with the money manager’s corporate communications staff sent to Bloomberg. “That means investment grade bonds will
be stable.”