Crave for yield widens gap in covenant quality

Author: Karry Lai | Published: 26 Nov 2019

For bond investors, the hunt for yield continues amid a low interest rate environment, but high yield experts warn of growing risks as investors accept weakening covenants for Chinese instruments.

"Investors are willing to accept further weakening of covenants because Asian covenants are still generally significantly tighter than their peers in Europe and the US," said Fredric Teng, head of high yield, debt capital markets, Greater China and North Asia at Standard Chartered. "Some of the deals in the west, particularly those from sponsor-owned companies, are extremely aggressive."

Teng added that from a global emerging markets perspective, high yield bonds from Greater China have been outperforming, and continue to offer better value than other parts of the world.

"The trend we have observed in the broader Asian market is a bifurcation in approach to covenant packages between Chinese high yield issuances and non-Chinese high yield issuances," said Paul Olivera, executive...