There is an increasingly robust case for yield-hungry investors to get out of US bonds and into Asian, dollar-denominated debt instruments, as Asian fixed income prices are heavily discounting an unlikely level of default risk.

There is an increasingly robust case for yield-hungry investors to get out of US bonds and into Asian, dollar-denominated debt instruments, as Asian fixed income prices are heavily discounting an unlikely level of default risk, an investment firm said.

The arguments come from Robert Rountree, global market strategist at Eastspring Investments.

In a note about developments for the second half of this year, Rountree said Asian dollar-denominated corporate bonds are pricing default rates of 2 per cent, almost double the level before credit markets were hammered in 2008 and well about the 0.75 per cent rate, which is the Asian region’s average historically worst default rate for the past 21 years.

In the second of five points he makes, Rountree also argues that Asian local currency bonds are higher yielding than Asian dollar bonds. Currency risk, such as for Indonesia, is lower as trade balances improve, he continued.

On equities, the strategist says Asian stock markets are relatively attractive; the rush by investors into US and European stocks has created “large pricing anomalies”.

“The economic dynamics that drove investors towards the US and European markets are slowing and swinging in Asia’s favour. Investors’ fears are focused on the US and Europe, such as will Europe avert deflation and is US growth as strong as forecast? Most Asia concerns are long standing and it is fair to assume that they have been discounted,” Rountree’s note said.

Last week, it was reported that Pimco, manager of the world’s biggest bond fund, predicted that sales of dollar-denominated notes from Asia will climb to a record $150 billion in 2014 as yield premiums shrink to a six-year low. It expected the size of the regional market may double to $1 trillion in three years. Pimco said that global bond funds, such as those in the US, are under-invested in the Asia-Pacific region.