Goldman Sachs: optimistic about Asian junk dollar debt, its default rate is overestimated

November 12, 2020

Recently, Goldman Sachs asset management company is optimistic about Asian junk dollar bonds. It believes that the default rate of Asian junk dollar bonds has been overestimated by the market, and its future growth potential is huge.

“We still believe that the return potential of Asian high-yield bonds is attractive in a low US interest rate environment,” said Salman Niaz, head of Asian credit at Goldman Sachs assets.

This year, global junk bond prices have risen sharply after central banks introduced unprecedented stimulus measures. But gains in Asia lagged behind as monetary authorities in the region did not introduce aggressive stimulus policies like the Fed.

In the absence of such targeted monetary policy, investors are more cautious about riskier borrowers in the region. The average yield on high-yield corporate bonds in Asia is about 7.8%, compared with about 4.6% in the United States, according to the index.

Recently, Indian commodity company Vedanta Resources Ltd. and some large Chinese funded real estate companies have experienced a situation of high debt and rising default risk, which also deterred some investors.

According to Goldman Sachs, the current trading level of high-yield dollar bonds in Asia indicates that the probability of default of these bonds will be in the middle and high single digits. In practice, however, the average default rate of these bonds in the past few years is only about 1%.

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