SINGAPORE, Jan 4 (IFR) - The year started with a bang in the
primary market, with high-yield rallying on the back of strong
demand for new deals by Chinese property developers Country
Garden and Kaisa Group and investment-grade spreads tightening
as bonds failed to emulate a spike in US Treasury yields.
The bullish trading was also a result of a deal that
postponed the fiscal cliff issue in the US for a few weeks
prompting accounts to add risk.
In fact, the first week of trading was confirming to the dot
the predictions of a trader who talked to IFR in the week before
Back then, he saw a 90% possibility of the fiscal cliff
being averted, a scenario that would unleash buying and tighten
spreads and boost high-yield bond prices. "Everyone had been
positioning for this throughout December," confirmed a fixed
income portfolio manager in Singapore.
The gains left investors sitting pretty in their first few
days of trading. Most bonds from Chinese property names closed
the week USD3 stronger, with Evergrande 2015s seeing their last
print at 111.00 as they hitched a ride on the USD28.5bn combined
orderbooks for the deals of Country Garden and Kaisa Group.
These two on Friday saw their new bonds trade up by USD3 to
103.00 and USD4.5 to 104.50 on Friday, as underallocated private
banking accounts picked up the bonds in the secondary.
The good mood reigned all over the place, though. The Asia
iTraxx IG index ended the week at 104bp, 8bp inside its last
print of 2012 and the tightest level it has seen since December
20120, while the five-year CDS of the Philippines was back
inside the 100bp mark, last quoted at 95bp/98bp. Indonesia's
protection closed the week 5bp tighter, quoted at 123bp/129bp.
The risk-on mentality also took its toll on Treasuries, with
the 10-year US benchmark printing the highest yield since May on
Thursday (see chart). With USD1.3bn of new inflows into EM bond
funds on the week ended January 2, according to EPFR, investors
were unwilling to sell even the high-grade bonds they own in
spite of the sharp move in Treasuries.
Philippines 2037s ended the week at 119.50, USD3 weaker in
price but still pretty much unchanged in spread terms around
60bp. Indonesia 2022s performed even better, closing the week
only some 4bp wider in yield terms, but about 5bp tighter in
spread terms around 103bp.
That performance was the norm, with one trader in Singapore
calculating that most liquid investment-grade names tightened
5bp to 10bp across the board.