Our love affair with bonds grows more intense by the day. From investment grade conglomerates in Hong Kong to high-yield energy companies in Kazakhstan, our appetite for credit risk - apparently - is unconditional and indiscriminate. We love them so much, there's not enough to go around. For every dollar issued, there's an average eight dollars of demand.
Asian US dollar-denominated bonds have returned an attractive 12 per cent year to date and there's nothing wrong with that. The only disappointment investors experience comes with the call from their bankers to explain why - in percentage terms - their allocations have often been scaled back to mid-single digits.
The problem with being love-struck is becoming blind to warning signs. And the most obvious question is whether Asian US dollar-denominated bonds are rich or still offer value. Are we in the lowly foothills of a bond bubble or are we about to hit the peak? Should investors hold firm or should they rotate, for example, into equities?
Average bond yields are at historic low levels. In fact, they've never been lower; between 1997 and 2011, the average yield of the HSBC Asian USD Bond Index (ADBI) stood at 6.80 per cent; as of today that yield has halved and now measures 3.40 per cent.
Some believe such low yields fail to adequately compensate investors for the risks they are taking. They believe the asset class has become so crowded, so over-bought, that the sheer weight of liquidity has crushed yields to such "artificially" low levels.
There may be some truth to such a view, but there's more to it. Asian bond yields are at all time record lows for fundamental reasons, reflective of continuing turmoil in our post-global financial crisis world. That's not just true of Asia yields but - excluding the peripheral economies of Europe - pretty much everywhere.
