ASIA CREDIT CLOSE: New issues drive flow, high-yield rally pauses

Last Updated: Thu, Apr 25, 2013 09:20 hrs

SINGAPORE, April 25 (IFR) - The drivers of Asian credit markets today were again new issues. Investors were selling some seasoned bonds from Chinese state-owned entities to make room in their portfolios for new issues from that sector. Yet, the new issues seemed to generate enough buying interest that it spilled over to the secondary market.

Institutional investors were said to be picking up the 2040s of Sinochem as they saw better value in senior long-dated bonds than in new subordinated perpetual notes.

"They are senior and offer similar yields to those on offer from the hybrids," noted a trader. This propped up the bonds, which were last quoted at 210bp/200bp, 5bp tighter on the day.

The bid side level for the bonds, indeed, translates to a yield of 5% for a bond that is senior and has a fixed maturity. Meanwhile, Sinochem has just revised the guidance on its perpetual junior bonds with interest deferral option to 5.125% area.

The new subordinated bonds have a 25bp step-up at year 10.5 and another 75bp hike in year 25.5. Hence, the company only has a strong incentive to call the bonds in 2038. Given the seniority and similar effective tenor, smart money was buying the 2040s instead.

Overall, though, the investment-grade market was having a good day with better buying across the board. The Asia ex-Japan iTraxx IG Series 19 was being wrapped at 111bp/112bp, some 2bp tighter in the day.

Single B bonds from China, however, paused after a weeklong rally as investors started to take profits on heady gains. Some names still managed to eke out a final 25-ct gain in price, but most property names dropped a bit. Still, the return they gave investors in the past week is impressive.

Sunac 2017s, for instance, closed the session at 106.00, having traded yesterday at 106.50 after gaining USD4 in price since last week.

CIFI Holdings 2018s also lost a bit, closing at 104.00, but still over USD2.5 higher in the week. "It was a technical squeeze, some people got caught on the wrong side of this trade and had to cover shorts," said one trader, noting that the movement had finally subsided.

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