ASIA CREDIT CLOSE: IG tightens as investors dip in again

Last Updated: Mon, Nov 19, 2012 09:40 hrs

SINGAPORE, Nov 19 (IFR) - Asian credit markets tightened today as investors in the region bet that markets would rally in the rest of the world after US lawmakers gave indications they might be able to reach a deal with the Barack Obama administration to avert the fiscal cliff and officials in Europe hinted that Greece will get more aid.

As a result, the Asia iTraxx IG Series 18 ended the day some 4bp tighter at 125bp/127bp. The five-year CDS for China, Philippines and Indonesia also ended all 3bp-4bp tighter on the back of the good mood in the market. "We have seen two weeks of weakness so it was about time for some positive consolidation," said one trader in Singapore.

The movement was stronger on the derivatives side, however, than on cash, as investors are not very keen on actually buying bonds going into the end of the year. Hence, cash bonds ended the day little changed in price but some 2bp-3bp tighter as a result of higher US Treasury yields.

This also was seen as an indication that the positive move was not due to a short-squeeze. "No dealers seem to be short as no one is putting their balance sheet on the line," said the trader. "But overall, positioning is very light."

One analyst in Hong Kong said that there was a little bit of buying in select names in the high-grade space as clients were indicating that they wanted to take profits on high-yield and allocate more to investment-grade.

The move buoyed Indonesia's new 10-year sukuk, which returned to par after dropping below that in slim trading on Friday.

Real money and retail accounts were seen nibbling at some high-yield bonds, but fast money was just taking profits to lock-in gains after a very good run this year. That movement was not very convincing, though, and seemed concentrated on bonds that had been more punished lately.

There was some buying of the new Soho China 2017s after they were bid at 95.00 last Friday, USD5 below their reoffer print just three weeks ago.

Those bonds ended at 96.50/96.90 today. However, investors still failed to see value on the 2022s of the issuer, even as they trade USD6 below reoffer, and they finished the day still quoted at 94.00/94.50.

"The deal was priced too tight, especially on the long-end, there still is room to widen," said one analyst.

Otherwise, however, investors were not buying much on the high-yield side and the asset-class did not get much of a boost from today's upbeat mood. Most of the bonds in that space ended the day unchanged, analysts said.

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