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 offshore bonds.
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. Christopher.Langner@thomsonreuters.com