ASIA CREDIT CLOSE: Credits recover, mood cautious on EM outflows

Last Updated: Fri, Jun 14, 2013 09:10 hrs

HONG KONG, June 14 (IFR) - Asian credit spreads tightened on Friday as risk assets rebounded globally, but the mood was still cautious as emerging market bond funds saw a bigger redemption this week than the week before.

Asia IG iTraxx index was around 139bp, wider than yesterday's 150bp.

"We are trading tighter, but I think people are still looking for an opportunity to sell. We are still not out of the woods yet as redemption continues," said a Singapore-based trader.

"The key word today is can you give me a better bid." Even though there was a reversal in risk sentiment, data on redemptions capped the enthusiasm.

EM bond funds saw redemptions of USD2.5bn in the week up to June 12. That's another USD1bn more than the previous week's USD1.52bn of outflows.

Hard currency funds saw USD1.4bn of outflows - the highest nominal level on record, though, based on assets under management, the 1.24% of redemptions was much less than the nearly 3% suffered in September 2011.

Despite the outflows, funds were still investing. Indonesia's 2043s were quoted at 86.5 last night but portfolio managers were buying at 91, traders said.

"It feels to me like Asian sovereign CDS has been quicker to move and reflect market sentiment than cash this week," said another trader.

Indonesia CDS was at 207bp from 240bp yesterday, while the Philippines was at 111bp.

All eyes are now on the outcome of the two-day Fed meeting on June 18-19, which will give a clue about the Federal Reserve's stimulus plans.

Traders are also keen to see some action in the primary market. Only one deal priced last week after a gap of two weeks when no deals printed. But traders also said that its better not to price a deal now and risk it widening in secondary because that would deteriorate sentiment further.

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