ASIA CREDIT CLOSE: Credit suffers as Treasury yields rise again

Last Updated: Thu, Jul 25, 2013 09:30 hrs

SINGAPORE, July 25 (IFR) - Bond markets took another beating today as investors again became weary of fixed-income products following an 8bp spike in the yield of 10-year Treasuries overnight.

Traders were seeing selling across the board as real money raised cash and broker-dealers lightened their inventory amid fears of further mark-to-market losses.

Because of the broker action, the selloff was felt more intensely after London opened, bringing in a lot of the shops in the city that were trying to reduce exposure to Asian credits after a sell-off in rates last night.

The pain was deeper in the investment-grade sector as the rise in Treasury yields, coupled with wider spreads, pushed cash prices several points lower in some cases.

One trader in Singapore said he saw better-sellers of Indian credits throughout the day, with the 2023 bonds of Bharti Airtel dropping some 75ct to close at 93.00/94.00.

The move also affected the secondary prices of the newly minted 2023s of Indian Oil Corp, which closed at 321bp/326bp, wide to the reoffer spread of 322.4bp over US Treasuries.

The effect was even worse in price terms and IOC's new bonds were last quoted at 99.50, below the par reoffer price.

Yanzhou Coal saw its curve widen 35bp after S&P moved its rating to negative watch on leverage concerns. CDS also moved and the Asia iTraxx IG index closed the day 8bp wider at 142bp.

High-yield was not spared either and most bonds in the sector were closing USD1-USD1.5 weaker in price terms.

Traders did see some potential relief near the end of the session as the German IFO numbers came in line with expectations and curbed a rise in benchmark yields in Europe. The effect was felt almost immediately and towards the Asian close traders reported a few bottom-fishers.

Still, liquidity throughout the day was very slim and traders expect it to remain that way. Part of it can be blamed on the summer holidays in the West, but some of it is due to caution.

Investors are waiting for a slew of market-moving data from the US next week, including the GDP and the FOMC meeting on Wednesday and the employment report on Friday.

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