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Asia's companies rush to issue dollar bonds ahead of U.S. election

HONG KONG (Reuters) - Asian companies are rushing to tap global debt markets ahead of the U.S. election on Nov. 3 on concerns volatility could spike and push up borrowing costs if the outcome is uncertain, bankers and fund managers said.

FILE PHOTO: A U.S. dollar note is seen in front of a stock graph in this November 7, 2016 picture illustration. REUTERS/Dado Ruvic/Illustration

U.S. dollar bond issuance in Asia, including Japan, reached a record high of $73.4 billion in September, according to Dealogic data.

That eclipsed the previous peak of $59.6 billion in January and was up sharply from $29.9 billion in August, the data showed.

Asia’s total debt issuance for the third quarter was $156.2 billion, up from $118 billion in the preceding quarter, bucking a reduction in the value of global deals during that time.

The cost of debt funding has fallen significantly this year with the benchmark U.S. 10-year Treasuries yield ending September at 0.667% compared to 1.91% at the start of the year.

Asia’s recent surge in issuance is being driven by the likelihood that volatility could increase around the U.S. ballot date, bankers said, coupled with abundant global liquidity.

“New supply is likely to be meaningful all the way until the election as issuers try to navigate a big market event,” said Rishi Jalan, Citigroup’s co-head of Asia Pacific debt syndicate.

“There was a lot of volume in the first few weeks of September and continued to build throughout the month.”

In the United States, the largest dollar bond market in the world, third-quarter issuance slipped from a record $1.01 trillion to $778.8 billion. September’s issuance was $243.5 billion, down from $305.3 billion one month earlier.

The European dollar bond market also surged in September as issuance more than doubled from $28.7 billion to $69.7 billion, the highest in 2020.

“There was a very conducive global market backdrop which helped,” said Ernst Grabowski, Morgan Stanley’s head of Asia Pacific debt syndicate, in regards to Asia’s record month.

“In Asia, on a year to date basis, market growth has lagged the U.S., but Asia is making up for some of this now.”

In the United States, Diamond Hill Capital Management portfolio manager John McClain said market conditions were receptive for bond deals ahead of the election which had prompted companies to issue debt at a strong clip.

“I would continue to expect a torrid pace of issuance pre-election. Because of the uncertainty, companies want to lock in financing needs,” McClain said.

“What’s the biggest driver of risk assets in the near term? The election.”

Worries over a smooth transition in the wake of the presidential election have grown in recent weeks.

During his first debate with Democratic challenger Joe Biden, President Donald Trump declined to commit to accepting the election results, repeating his unfounded complaint that mail-in ballots would lead to election fraud.

Reporting by Scott Murdoch in Hong Kong and Kate Duguid in New York; Editing by Kim Coghill