ASIA CREDIT CLOSE: New bonds flat to weak amid thin liquidity

Last Updated: Wed, Dec 05, 2012 08:50 hrs

SINGAPORE, Dec 5 (IFR) - Asian credit markets were marginally weaker today, despite firmer sentiment in regional equity markets.

Bankers reported that trade volumes were thin today, with only a few brokers quoting prices. That thin liquidity meant that a single trade would have the effect of moving prices pretty sharply.

The iTraxx Asia IG index pushed out to 112/114bp, nearly 4bp from 109bp quoted last evening. The CDS for Indonesia was indicated at 120/125bp while the Philippines was seen at 96/101bp.

In the bond space, a newly priced deal from Keppel Land and a re-tap from Citic Pacific were in focus today, but brewing political problems in Mongolia had a huge impact on the USD1.5bn six-year and 10-year bonds that were coincidentally issued today.

Mongolia bonds plunged today, dropping USD7-USD8 in price following news that the Mongolian People's Revolutionary Party was going to quit the governing coalition. Chinese news agency Xinhua reported that MPRP secretary G Byambasuren said the party made the decision at a meeting held by its executive bureau Monday afternoon.

The negative headlines put pressure on the new bonds the sovereign sold just last week. The USD500m 2018 notes were priced at 99.996 to yield 4.125% while the USD1bn 10-year bonds priced at par to yield 5.125%.

As a result of the news, fast money accounts were heard selling the bonds - the 10-year was being quoted around 93.00 while the 5-year was around 94.00, sliding from trade levels of as high as 101.50 for both tranches almost a week ago.

Keppel Land's debut seven-year bonds also suffered from the general soft sentiments after pricing overnight at a tight 220bp over US Treasuries. The bonds opened to trade amid huge confusion over whether the bonds were going to be quoted over the more liquid five-year or 10-year Treasuries, rather than the less conventional 7-year rates.

Hence, the bonds were quoted at 240bp over 7-year Treasuries on the break, but by late morning, the leads had started quoting over the 5-year Treasuries.

At 220bp over 7-year Treasuries, the pricing would be equivalent to about 262bp over 5-year Treasuries. By mid-afternoon, the bonds were still wide at 275bp over 5-year UST. Rival bankers and investors blamed it on the tight pricing, which came flat to inside to comps but banks close to the deal said the widening was in line with the weaker credit conditions.

That argument seems supported by Citic Pacific, which did a re-tap of its 2023s yesterday at 101. The bonds were quoted at 100.50/101.50, flat to where it priced at reoffer.

High-yield credits are also a touch lower, although credit analysts see the HY sector moving sideways for the rest of the year.

"We may see some rotation out of the very tight names either to be kept as cash for the coming year, or into some of the wider names out there, or those which have been affected by event risk," said one Singapore-based analyst.

Shui On Land's perpetuals were seen at 100.125/100.5 today, slipping from yesterday's 100.2/100.4, while Soho China's 2017s slid to 98 and the 2022s to 97, down from the reoffer price at par.

Another high-yield bond that softened were Olam's 2017s, which have pushed down to 88/90 as investors showed their unhappiness over its newest USD1.2bn bonds-cum-warrants issue that had market players puzzled over the company's overall strategies. Shareholders also showed their dismay as its stock price has tumbled almost 6% today.

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