Asian debt market staggers back to life The past few months have been full of frustration for Hong Kong's debt bankers. Aside from the stifling heat and incessant summer downpours, deal flow has virtually ground to a halt since Federal Reserve chairman Ben Bernanke first uttered the word "tapering," an eventual downsizing of asset purchases by the US central bank. Now, just as many are starting to pack their bags for sunnier shores, the market seems to be sputtering back to life. Mr Bernanke's first mention of tapering in May sent debt markets worldwide into a tailspin. But Asia was in many ways the worst hit region. Having broken full-year records for junk bond issuance by mid-April, the market froze abruptly, and remained largely closed for two months. New high-yield deals raised $3.7bn in May but just $176m in June, according to Dealogic, while monthly investment grade corporate bond volumes more than halved. Chinese companies - which had been the main source of issuance this year - have been notably absent in recent months. No mainland-based borrower has tapped the dollar or euro bond markets since May 22, the day of Mr Bernanke's remarks, while the market for new offshore renminbi bonds has been suffering from its longest ever barren spell. The problems have not been confined to China. Indonesia's sovereign bonds offer the clearest example of the change in attitudes towards Asian credit. In April this year, the country raised $3bn in 10-year debt with a coupon paying just 3.5 per cent, a record low. When it returned to the market two weeks ago, it sold $1bn of bonds with the same duration at a yield of 5.45 per cent. In that time the spread paid above US Treasuries had jumped from 1.76 per cent to 2.87 per cent. Fund flows have played their part. June saw record outflows from emerging market fixed income funds, according to data from EPFR, forcing many to cut positions. Rising concerns about China, which saw its worst ever interbank liquidity crunch late last month, also sapped demand. But Mr Bernanke's comments have been by far the most important factor. Due to the resultant jump in yields on US Treasuries, investors have simply become more demanding. "I'm still looking, but I'm going to be a lot more selective, and I'm going to be asking for a bit more [yield from issuers]," says Bryan Collins, fixed income portfolio manager at Fidelity in Hong Kong. [Lower-rated borrowers] really do need to pay up to get investors involved. Despite the rapid switch in sentiment, some corporate borrowers have started to dip their toes in the water. Just over a week ago, the high-yield debt market creaked back open when Indonesian retailer Multipolar raised $200m in dollar debt, paying a yield of 9.75 per cent. In the past couple of months, the deal flow we've had in Asia has been limited. We did see a period of intense volatility," says Ken Wei Wong, head of Asian bond syndicate at Barclays. In the past couple of weeks we've seen some stability. But the Multipolar deal is unlikely to herald a return to the glory days of just a few weeks ago. Secondary market performance has been poor, with yields jumping to 10.42 per cent, while the value of the bonds themselves has dropped to 96, having issued at a par value of 100. Since then more deals have come, but largely from quasi-sovereign or investment grade borrowers, such as Korea Gas, Mitsubishi Corp, and Indian Oil. Many expect this pattern of highly-rated borrowers dominating issuance to continue for the rest of the year. Junk deals will still be made - but at a price. "After unfettered access [to credit markets] for a year and a half . . . the last few weeks have really been a wake up call to a lot of borrowers," says Duncan Phillips, co-head of Asia-Pacific debt syndicate at Citi. No one is getting the yields they are used to, that's out the window. While appetite to lend has taken a clear hit, the appetite to borrow has also diminished. Many companies made the most of the boom times earlier in the year to complete much of their funding, giving them the option to wait and see rather than tap markets again at higher costs. There are a lot of issuers that we know can access the market, but there's still a gap between what they are prepared to pay and what the market can offer. We need a bit more time for markets to settle down," says Mr Wong of Barclays.