SINGAPORE, Dec 9 (IFR) - Investors finally are catching
their breath after another year of record supply and are seeing
an end to the relentless issuance schedule.
As they realize there may be no more deals before the new
year, investors slowly are putting loose cash to work ahead of
their year-end financial reporting.
According to traders, real money investors have been buying
in bits and pieces. While the amounts involved are not large,
illiquidity in the market has allowed spreads to move tighter
across the board.
The sharper movement was on the cash side, though even
credit default swaps tightened a bit. The Asia ex-Japan iTraxx
IG index closed the session quoted at 132bp/134bp, about 2bp
tighter than Friday's close.
On the cash front, spreads of the more liquid benchmarks
were all 3bp-5bp tighter. The outperformers, however, were bonds
backed by standby letters of credit from Chinese lenders.
The yield on a USD800m 3-year bond issued by China State
Shipbuilding Corporation last week was closing the day quoted
13bp tighter, at 237bp/232bp over the 2-year US Treasury. The
spread on Haitong Securities 2018s, backed by an SBLC of Bank of
China, were also about 13bp tighter.
One real money investor said that part of the reason for the
surge in demand for SBLC-backed bonds in the secondary market
was a story published by IFR on Friday that said Chinese
regulators have been telling banks to stop using the structure.
Given the expected drop in supply, accounts started seeking the
bonds already available.
Bankers from both Hong Kong and China confirmed they have
been receiving indications from regulators that they are not
happy with the growing use of standby letters of credit for
However, there is a pipeline of a half-dozen such
transactions approved earlier in the year that may be executed
before the structure stops being used.