HONG KONG, Aug 10 (IFR) - Asian credit spreads widened in afternoon trade after tepid data from China gave the market an excuse to lock in profits after levels had risen to four-month highs.
China's July exports undershot forecasts and new bank loans in that month fell short of expectations dampening hopes of a quick recovery in the global economy although it did strengthen expectations of monetary stimulus to revive growth.
The iTraxx investment grade index series 17 retreated slightly to 147bp/148bp, some 2bp wider than the morning but still hovering around the lowest since end-March.
China's sovereign 5-year CDS moved back up to above 100bp reversing some of this month's 10bp tightening. The China contract had already seen a lot of activity in the run up to the data-packed week.
In the week to August 3, China sovereign CDS net notionals, the aggregate amount that would be paid out in case of a credit event, rose by the most in Asia ex-Japan. The net rise was USD69m for an aggregate of USD9.4bn.
"The China data is balancing out the froth a little bit but it is still well supported technically," said a Singapore based trader referring to the supply drought."Dealing desks have light inventories because of the summer and in anticipation of the euro zone situation worsening moves are therefore exaggerated."
This week saw just two issues - Sinopec's USD500m re-tap of its 2022 and Sound Global's USD150m 5NC3 - push through after a record USD85.75bn had been absorbed by the market for a weekly average of USD2.75bn. the tally now stands at USD86.4bn.
For a graphic click on http://link.reuters.com/kux97r
In the China SOE sector bonds remained strong indicating that the widening in the China CDS was driven more by sentiment rather than any real concern. The re-tapped Sinopec 2022s are trading strong at 140/135bp compared with their retap level of 145bp.
Newly sold bonds from Indian lenders State Bank of India and Exim Bank continued to tighten as the market cheered the return of pro-market reforms finance minister Palaniappan Chidambaram and the fact that expected supplies from the sector had not materialised as yet.
EXIM 2017s are trading at 315bp/310bp after being priced at 355bp, and State Bank of India 2017 is trading at 325bp/320bp, much tighter than reoffer 375bp. Despite weaker fundamentals Exim trades tighter due to its EMBI inclusion.
Earnings are being closely watched although the market continues to take any surprises on the downside in its stride.
Supply chain manager Li & Fung's 2017s widened only marginally to a spread of around 200bp over US Treasuries after the company's core operating profit fell 22% to USD221m in the January-June period. In contrast, the stock plunged as much as 22% at one point.
Another company reporting a drop was Swire Pacific, which saw net profit plunged 64.8% in the first half, which analysts mainly blamed on the losses from its subsidiary Cathay Pacific.
Swire's 2022s are trading at 205bp/195bp over US Treasuries and the 2019s are at 155bp/145bp above, both unchanged. The stock was down only 2% as the loss was expected after its unit Cathay Pacific Airways, on Wednesday announced its worst first-half loss since 2003.
The supply drought was even more acute in the high yield sector where investors continued to hold on to weak credits despite poor operating performance because of the yield that they were fetching.
SPG Land's bonds due 2016 are trading steady at 82/83 after the company said the gross floor area sold in July fell 43% and its average sale price declined 5% over the previous month.
West China 2016 rose to 88 from yesterday's 86.5/87 extending its recovery after the company was targeted by fraud charges earlier in the week. Shanshui 2017s is also higher by half a point at 104/105.
Buyers of Indonesian coal bonds are returning after positive data on China's electricity consumption earlier this week boosted their lure. Adaro 2019s are trading above 108, Indika 2018 is at 102.25/103, both trading at near three month highs.
"These names are very solid today, people like the electricity data that came out and coal prices continue to recover," said the Singapore-based trader.
That optimism has also helped Bumi 2017s trade steady at 103/104 despite poor earnings.
Overnight, Bumi Plc reported a loss for the first half of the year, but price trends were encouraging. Coal from unit PT Berau was sold at USD76.6 per tonne on average, while coal from part-owned PT Bumi was sold at USD88. That compares to USD74.6 and USD91.3 per tonne last year respectively.
For a graphic on Bumi bonds versus coal prices click on http://r.reuters.com/cyz89s (email@example.com)