Foreign borrowers banking on Asia-Pacific bond markets

Foreign borrowers are increasingly flocking to Asia-Pacific bond markets, demonstrating that it's not just Big Tech seeking funding amidst rising uncertainty and record borrowing. This year, Germany's Commerzbank, French utility Engie, Henkel, Singapore Airlines, and the Portuguese government have sold bonds denominated in Australian dollars for the first time.

In fact, auctions of bonds in Australian dollars from foreign issuers are at an all-time high of around A$60 billion, a 40% increase from last year. Chinese onshore and offshore yuan bond sales also reached record highs in the first half of the year, growing over 60% compared to the same period last year, with half of the total originating from international borrowers.

HSBC's Carla Goudge notes that these markets have tipped over into being significantly more meaningful for both local and international names. Even the yen, a more established funding currency, has seen double the bond sales by foreign borrowers this year, according to LSEG. Alphabet's Google parent has been a significant driver of this trend, but even without it, bond sales by foreign borrowers remain at a seven-year high.

The surge in Asian borrowing is driven by the need to diversify funding sources as AI investment booms and government deficits grow in the US and beyond. Mizuho's Hampus Falth highlights that borrowing in Asian currencies has expanded due to structural demand growth, such as Asia's financial wealth boom and Australia's growing pension fund assets.

China's push to internationalize its currency has also encouraged broader investor participation in panda and dim sum bonds. As markets grow, more investors and issuers become familiar with them, leading to further growth. This trend also reflects investors' desire to diversify away from the US dollar, with Asian investors and central banks turning to the Australian, Hong Kong, and even euro currencies.

While there are limits to how much borrowing these markets can sustain, the trend appears to be gaining momentum, with Brazil and Kenya also considering issuing panda bonds.