ASIA CREDIT CLOSE: First week ends in bullish tone

Last Updated: Fri, Jan 04, 2013 09:10 hrs

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 Christmas.

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.

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