ASIA CREDIT CLOSE: Firmer bias could see Asian spreads tightening as 2012 ends

Last Updated: Wed, Dec 12, 2012 09:00 hrs

SINGAPORE, Dec 12 (IFR) - It may be all quiet on the Asian secondary credit front, but spreads are beginning to reflect a bias towards a firmer trend, suggesting that Asian credit spreads may finally catch up with the tightening that have been seen in Europe and the US in the past week.

"Spreads have been coming in in the US and Europe markets, but Asian levels have been hanging around at the same ranges for the past weeks," said one credit analyst. "But my feeling is that the spreads could snap tighter as we move towards the end of December.

It could end up the same as last year, with a close on a firmer note. Well, at least we just need to get pass the US fiscal cliff."

Other market players agree, particularly if some expectations for the US Fed to announce an outright Treasury purchase programme come through at the upcoming FOMC meeting. Funds are continuing to flow into emerging markets as last week's EPFR data showed.

A Deutsche Bank credit outlook for next year projects a positive year, albeit with less juicy returns. If a full fiscal cliff can be averted, credit spreads would tighten in the first quarter "as the near term macro overhang recedes along with an improving outlook in China".

The gradual firmer tone is reflected in the iTraxx Asia Ex Japan IG index which was indicated at 110/112bp, about 1bp in from this morning but about 3bp in from yesterday's close.

That was a snub to North Korea as the Asian financial markets completely ignored a missile launch from that country. South Korea's CDS stayed steady at 61/63bp.

Secondary cash bonds were hardly traded in sluggish markets today. The only splash in the credit markets was the unexpected announcement of a 144a/Reg S 10-year trade from high-yield Chinese industrial company Zoomlion. At 6.25% guidance, market players suggest that it had little room to tighten and the deal had little effect on other Chinese industrial paper in the secondary market.

Some bids were seen for the last priced bond in Asian markets - Hon Hai's 2.125% due 2017 which were seen at 160bp today, tighter than the issue spread of 165bp. Bids were heard at 168/162bp but hardly taken up.

Olam 2017s were showing signs of rebounding, indicated at 1.5 point higher at 91/92 with a yield of 7.8%.

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