Asia's junk bond rally near exhaustion

The signs of excesses in the rally that left some junk bond holders with returns of 45 percent in 2012 are several.

In the first week of the new year, investors put in an overwhelming $45 billion of bids for $1.75 billion of bonds offered by three junk-rated property firms from China.

But a more recent bond issue from Guangzhou R&F Properties was subscribed less than three times, while KWG Property withdrew its perpetual bond offering after it was covered just two times.

Alarm bells rang again when Chinese property firm Hopson Development Holdings Ltd., a company that is rated just four notches above default, raised money through 5-year bonds paying less than 10 percent, a rate less than half of what it would have had to pay a year ago.

KWG's cancellation was driven by investors' concerns that the bond issue was as risky as an equity investment, while a bunch of recent issuers have watched their bonds fall sharply in secondary market trading.

Even by themselves, these could be signs of an extremely frothy market taking a breather. But viewed alongside data showing investors globally are putting their faith in economic recovery and therefore shifting their cash back into stocks, they spell trouble for the yield junkies.

"Clearly the market is facing indigestion, especially due to supplies from property companies," said Arthur Lau, head of fixed income, Asia-Pacific at

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