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
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
Otherwise, CDS moved slightly wider, and the Asia iTraxx IG
Series 19 index closed 1bp wider at 99bp/101bp.