ASIA CREDIT CLOSE: Regal recovers, CDS tightens

Last Updated: Mon, Oct 15, 2012 09:20 hrs

TOKYO, Oct. 15 (IFR) - The primary market continues to hog the attention of traders, with actual secondary trading very scant as brokers followed the headline flow of new issues. Likewise, most of the two-way activity done on the more recent bonds, which are still seeing position-shifting.

The unrated five-year bonds of Regal Hotels, for one, started the day trading below reoffer but later recovered and were quoted last at 99.40/99.65. The bonds priced on Friday at 99.44.

The technicals remain positive, though, with research firm EPFR having reported another week of strong inflows into EM bond funds last week. The asset class saw USD1.7bn in net inflows in the week ended October 10.

In response to the growing demand, though, supply continues to hit the screens and today it was the turn of Korea Expressway, which is out with a five-year USD bond. Many other deals, a few in the high-yield space, are preparing to launch later in the week.

There was some movement on the CDS side as well, as the Asia iTraxx IG series 18 tightened 1bp to close the session quoted at 126bp/128bp. The move seemed to be more of a reflection of the equity markets, which ended the session slightly stronger following positive economic news from China.

Philippines protection outperformed the index a bit, tightening 2bp to 104bp-109bp as some investors sold protection following the announcement that the government had signed a peace agreement with Muslim rebels in the province of Mindanao. The headline came late in the session and had a marginal effect on trading though. as much of the market had already priced-in the agreement.

In an interview with IFR, though, the funding manager for the Philippines was quite bullish about the peace treaty with the rebels in Mindanao. When the Mindanao region is better integrated, "the potential for contributing to the Philippines economy is huge," Tan told IFR during a meeting on Saturday.

Market players, however, shrugged the news as just another positive headline from a sovereign that has been improving its credit metrics steadily for the past five years.

Indeed, five-year CDS for Indonesia was also 2bp tighter in the day, while China, Malaysia and South Korea were 1bp tighter at the close. Apart from the CDS moves, there was little to write home about in terms of trading in investment-grade credits. "It was a very sleepy day, I spent most of it catching up with admin stuff," said a distribution banker.

There were a couple of trades on the high-yield front, but nothing eye-catching. The exception probably being the bonds of China Oriental, which had dropped to 83.50 last week but recovered to 85.50/86.50 following the announcement that the company is doing a Dutch auction for up to USD100m of its outstanding 7% 2017s.

The price range on the tender is from 84.50-88.00, so investors started to bid the bonds up in an attempt at getting a higher price on the buyback.

Lippo Karawaci, which also announced a tender for its 2015s alongside a USD100m reopening of its 2017s, did not move on the news.

More from Sify: