ASIA CREDIT CLOSE: SEA subordinated rallies, region tighter

Last Updated: Thu, Nov 22, 2012 09:20 hrs

SINGAPORE, Nov 22 (IFR) - Asian credit markets saw very little activity today as US investors were out for the Thanksgiving holidays, but the subordinated bonds of Southeast Asian banks saw decent demands as some local accounts found value in the securities.

According to a couple of traders in Singapore, most of the bonds in that space were closing the day 5bp to 10bp tighter with orders of as much as USD5m crossing desks. Analysts and traders could not offer much reason for the sudden demand, apart from the fact that the space seems cheap.

"You have most of the subordinated bonds from banks in the region trading in the 250bp-300bp area while the senior unsecured is trading in the 130bp-170bp range," said one trader. "Why are you going to buy the same credit for 150bp when you can buy for 300bp?"

Apart from that, there was little to write home about. Baidu continued to grind tighter, with private banking accounts jumping on the few bonds available on the street. The 5-year was last quoted at 137bp/135bp, 5bp tighter than yesterday's close, while the 10-year was at 167bp/165bp, 3bp tighter.

The bonds priced earlier this week at 160bp and 185bp over Treasuries respectively. Traders reported some two-way flow in Hong Kong bonds and some buying interest elsewhere, but no large trades were being printed.

CDS was better offered in response to the overall positive risk sentiment. As a result, the 5-year protection for China was being quoted at 61bp while South Korea had dropped below the 60bp level quoted at 58bp and Malaysia was at 67bp.

This pushed the iTraxx Asia IG Index series 18 some 2bp tighter to 116bp/118bp. "I guess people just started to realize it may be time to buy CDS," speculated one trader.

The risk appetite was boosted by better than expected numbers from China. HSBC's flash manufacturing PMI rose to a 13-month high of 50.4 -- it was previously at 49.5 --, moving above the key 50 level that indicates expansion.

Japan's Nikkei index also continued rise, closing 1.6% higher in the day, wrapping a gain of 8.5% over the past seven sessions, buoyed by expectations of a win of the LDP.

With China back in growth mode and everyone feeling good, high-yield also was pushed higher with most of the bonds of PRC developers closing the day 25ct-50ct higher in price terms. Trades were scarce, though, with the movement being marked on paper more than based on actual trades.

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