Asia bonds offer finest covenants

Covenant packages for Asian high-yield bonds were much stricter in the second quarter than the first, expanding the disparity over similarly rated US, Latin America and European notes an indication that investors are still cautious about the securities.

For starters, Asia is plagued by structural issues. This problem is more noticeable in countries like China, where foreign investors are buying bonds from an empty shell that, in turn, owns a stake in the operating company in China they have no direct security over the underlying assets.

Since the offshore bonds are not counted as debt on the balance sheet of the mainland company, foreign bondholders are...