SINGAPORE, May 9 (IFR) - There was a strong rally today in the most liquid dollar bonds from South Korea as dealers covered shorts afer the Bank of Korea implemented a rate cut.
The rate cut prompted a 10bp widening in the local curve, according to one trader, leading to expectations that locals would move into the dollar market and squeezing shorts out of the bonds of Kexim and KDB.
The 2022s of the two policy banks, which are often used as proxies for the sovereign credit, rallied 10bp and 7bp to 107bp/102bp and 110bp/105bp, respectively. "There was massive short covering on these names," said one trader in Singapore.
Other bonds from South Korea also performed well, but did not tighten nearly as much as these two because they were not being directly used to position against the sovereign credit. The recently issued bonds of Daegu Bank, Korea Resources and Korea National Oil Corp, for instance, ended unchanged to 1bp tighter only.
KNOC tightened earlier in the day, but pressure from flippers that were taking profit before the settlement forced the bonds back to end unchanged at 136bp/134bp, still much tighter than the reoffer spread of 145bp over US Treasuries.
One trader in Singapore also said there was some profit-taking on the bonds from the Chinese oil sector, which priced in the past month.
Most of them ended some 3bp to 5bp wider in the day. They had, however, staged a strong rally in the past two weeks, so traders viewed this merely as a consolidation instead of a retracement.
Otherwise, CDS moved slightly wider, and the Asia iTraxx IG Series 19 index closed 1bp wider at 99bp/101bp.