Asia's junk bond rally near exhaustion

The first weeks of 2013 have indeed seen a steady stream of bond issues by sub-investment-grade and investment grade companies hoping to exploit the remnants of last year's desperate hunt for yield, including Hong Kong Broadband, Korea Development Bank, Cheung Kong Holdings and Agile Property Holdings Ltd.

At the same time, investment-grade companies that supplied the bulk of 2012's record $133.8 billion of foreign currency bond issues have retreated somewhat since December.

A big reason for that shift has been the worry that even in a world of zero interest rates, top-rated bonds in Asia no longer adequately compensate investors for the risk of a spurt in U.S. Treasury yields, to which their coupons are benchmarked. "There is not a lot of spread cushion left in our market, so if we do see a reasonably large shift in the U.S. Treasury market of say about 80 basis points, that would wipe out gains from a carry perspective in Asian yields," said Kaushik Rudra, credit analyst at Standard Chartered Bank.

TREASURIES THREAT

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

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