Asian bond issuance had investment banking firms quite happy through the first half of calendar year 2013. The fees on these transactions and issuances produced a significant stream of revenue that kept bankers quite busy. However, the winds seem to have changed, taking their signal from the U.S. Federal Reserve’s own stepping away from the bond market. Central banks and big institutions in foreign countries often tend to pay attention to international markets, so the U.S. move, scheduled to occur by 2014, may have already started a ripple effect across different markets.
Changes in Flow
The demand and movement of bond issuance that has occurred mid-year was not a gradual change. As of early June, bond issuance activity in the Asian market suddenly froze off and disappeared. Mergers subsequently died off as well. The last big movement was by China Huaneng Group in the first week of June, which generated a $400 million bond issuance.
The amount of revenue involved is no chump change either; fees in the first half of the year generated $3.6 billion for bankers, which is sizeable, but it is also the lowest level of fees collected since 2009. The various revenue charges that feed into this income includes debt arrangement fees, equity transactions, advice and assistance on mergers, and acquisitions.
From the technical perspective, the windows for new bond issuances in Asian markets are few and far between now. Much of this has to do with market volatility, which has increased dramatically since the chatter from the U.S. Federal Reserve. Prior to this point, Asian markets were seeing regular activity in government bond sales, mainly due to the extremely low interest rate environment that existed up until mid-year 2013. However, as soon as the Federal Reserve began speaking about “tapering” in June 2013, interest rates shot up. That, in turn, has likely triggered a cost freeze across global markets.
Impact on Opportunities
For investment bankers that heavily rely on Asian markets for work, clients, and revenue streams, it’s high time to start adding other options to the portfolio – if one hasn’t already. The current market shift situation is showing strong signals of a drawback by Asian bond customers until the global central bank directions clear up. Once markets have a better idea of what the U.S. Federal Reserve is doing, as well as Asian central banks, additional bond issuance decisions will come into line accordingly. However, until then, work could conceivably be dry, with little demand for new deals or bond projects for a while.