ASIA CREDIT CLOSE: IG tightens, China property recovers

Last Updated: Thu, Mar 07, 2013 09:40 hrs

SINGAPORE, March 7 (IFR) - Investment-grade credits ended the day tighter as bonds in the region failed to emulate a spike in US Treasury yields overnight and compressed spreads.

The yield on the 10-year US benchmark rose 4bp yesterday as US investors bet on a strong nonfarm payroll number tomorrow.

The risk-on trade also boosted CDS and the Asia ex-Japan iTraxx Series 18 ended the day 2bp tighter, quoted at 109bp mid-market. Cash, however, also outperformed US Treasuries, and the long-end Philippines bonds were down only 25ct, meaning the spread on the sovereign was 2bp-3bp tighter on the day.

Indian banks also saw some select interest as investors covered short-bets set up in the wake of the budget announcement last week. HDFC's recently issued 2018 bonds were some 4bp tighter, quoted at 228bp, still wide to the 220bp reoffer spread printed last week, but better than the 232bp-235bp seen earlier this week.

The underperformer in the IG arena was the long bond from AIA Group, which widened further. While its new 2018 bond closed at 110bp/108bp, inside the reoffers spread of 110bp, the 2023 widened some 3bp in the day closing at 140bp/138bp, also much wider than the 130bp reoffer spread.

Still, high yield was the clearest beneficiary of the risk appetite. Chinese property bonds were up 25ct, on average, in price terms and some of the names that had taken the most beating were seeing gains of 50ct. Soho China's 2017s, for instance, were up 50ct quoted at 99.15 mid-market. Shimao's 2020s also were better bid, ending the day some 25ct stronger at 97.50.

"We are back to where we started the week," said one analyst, pointing out that the Chinese property sector had fully recovered the losses seen in the first half of the week after policymakers announced a series of measures to cool the property market.

China Vanke (BBB/BBB+) was riding the positive sentiment towards the sector and had already logged in more than USD6bn in orders for its USD800m 10-year bond being offered at 200bp area. "This will perform well," suggested the analyst.

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