points, that would wipe out gains from a carry perspective in Asian yields," said Kaushik Rudra, credit analyst at Standard Chartered Bank.
It's a threat that has been steadily amplified by signs of improving economic growth in the United States and China, by the Federal Reserve's allusions to a quicker end to its aggressively easy monetary policy and, mainly, the avoidance at the start of the year of a massive automatic tightening in U.S. fiscal policy. Ten-year Treasury yields have risen 30 basis points in the past six weeks.
"Everyone is cautious on rates. The less rate-sensitive the credit, the better it is for investors," said Rajeev De Mello, a fund manager with Schroders.
"That may explain why high yield has got ahead of others. Plus it is also the yield environment where people are looking for higher yielding assets," he said.
Junk bonds, by virtue of their high yields, should offer a better spread cushion against that risk of a selloff in Treasuries, but the year-long rally had eroded the buffer.
Standard Chartered's Rudra doesn't have a big selloff in junk bonds as his base case, but warns that it wouldn't be an unrealistic scenario.
"Once you start seeing a shift, you could have momentum build up. A lot of people could start selling fixed income products in anticipation of bigger moves on the Treasury side and it becomes self -fulfilling," he said.
The interest in new issues could also be waning.
In the first week of the year, International Container Terminal Services received orders of $5.5 billion for a $300 million issue, Hopson received $6 billion of bids for a $300 million issue and Indonesian developer Lippo Karawaci's issue was subscribed more than six times.
But just a week later, KWG Property pulled a perpetual bond issue after attempts to woo wealthy retail investors with a rebate of as much as half-a-dollar on each bond failed to enthuse buyers. This compares with an average rebate of around 25 cents issuers used to pay to entice individual investors, in itself an indication of a change in sentiment. Another property firm, Cheung Kong Holdings, got the same private wealth investors to pick up 60 percent of its perpetual bonds.
Plenty of investors have already decided this is an environment in which exposure to equities is possibly the better alternative to putting more money into junk bonds, whose riskiness is comparable to equities.
Data from funds