Number of corporate bonds issued forecast to slow
By Ted Chen, The China PostTAIPEI, Taiwan -- Taiwan Ratings Corp. (中華信評) yesterday stated that the issuance of corporate bonds in Taiwan is likely to slow due to uncertainties throughout international markets over the likelihood that the U.S. government may taper off its quantitative easing measures.
August 22, 2013, 12:04 am TWN
According to a report by the company, a Standards & Poor's Ratings Services associate, Taiwan's major trading partners in Asia are expect to see slower economic growth, leading to decreased issuance of corporate bonds in Taiwan for the next few quarters, as corporation scale down expansionary plans in response.
July marked the greatest year-on-year decline in bond issues in the first half of this year, said the company. However, credit spread in the domestic bond market is not expected to experience a significant fluctuation compared to forecasts posted for the international bond markets, according to Taiwan Ratings, which added that Taiwan will not be affected significantly.
The company stated that Taiwan has stable credit conditions, regulated by adequate levels of competition observed in the financial markets, and not subject to a strong influence by heavy bond holdings by foreign institutional investors. The bond market in Taiwan is deemed to be highly resistant to international factors, and not likely to see high volatility, said the company.
The report stated that Taiwan's bond market is primarily composed of higher rated certificates, with most local investors characterized as risk averse. Issues of bonds rated lower than twBBB are most likely to bear the brunt of the declines in the Taiwan market, said the company.
Most notably, Formosa bonds (寶島債), an instrument developed by the government to develop an offshore yuan clearing center, has reached a scale of 3.9 billion yuan, in the first five issues since its introduction six months ago. With cross-strait commerce poised to see further deregulation, the popularity of Formosa bonds is expected to grow markedly, the company said.
However, the company noted that it is still monitoring the fledgling Formosa bonds, as it faces competition from similar offerings of Dim Sum bonds offered by Hong Kong-based firms. Formosa bonds will be more competitive in the market if regulations are improved to promote confidence among investors, and participation from more issuing financial institutions.