SINGAPORE, Jan 31 (IFR) - Asian credit markets closed an ebullient month of January on a sour note, with investment-grade spreads widening by 6bp-8bp and recent perpetual bonds testing new lows. The Asia ex-Japan iTraxx IG index closed quoted at 116bp/117bp, 8bp wide to yesterday, marking one of the sharpest moves of the index in the past month.
Some of the benchmarks that comprise the index saw even sharper moves, with Indonesian 5-year CDS wrapping 11bp wider at 145bp/151bp and Philippines protection some 7bp wider at 105bp/110bp.
The move in the spreads of the sovereigns was more intense with most of Indonesia's curve ending some 10bp-15bp wider and Philippines widening some 10bp as well. The fact that spreads underperformed CDS suggests the move wider was driven by selling of bonds instead of dealer positioning on the credits.
Indeed, one trader said that accounts were showing concerns about the future direction of the market after yesterday's negative GDP print in the United States and were lightening their bond holdings ahead of the Chinese New Year lull.
"People were not even bothering to window-dress, they were just selling," said a trader in Singapore, referring to the common practice that some funds have of adding the best performing bonds to their portfolios toward the end of the month known as window-dressing.
As selling goes, perpetual bonds were the favourite target after the new fixed for life perp by Reliance weighed on that asset-class. All of the perps in the market suffered multi-point losses in the morning, with Agile touching lows of 90.00 and Reliance printing as low as 94.00. The brand new Petron also lost some USD4 in price on the break.
Petron, however, found retail support at 96.00, in spite of 75% of the deal having been allocated to private-banking accounts anyway. Traders also saw leads trying to squeeze naked shorts placed on the bond by a handful of fast money accounts. The strategy seems to have worked to some extent and Petron's new perp was closing the session quoted at 100.25, 25ct above reoffer.
The Petron move also pulled up the other perps bringing Agile to 91.50/93.50 and Reliance to 96.50 at the close. The perps continue to be, though, the bond dealers love to hate and traders said there were still enough shorts in place to keep the weight on them.