SINGAPORE, Feb 7 (IFR) - A bout of short covering ahead of
the Chinese New Year provided a bounce to credit markets today,
reversing some of the recent losses of the asset class. The
gains, however, seemed to have little fundamental support apart
from the need to deliver paper shorted in the past two weeks.
The Hang Seng Index, for instance, closed down 0.3% weighed
down by Chinese financials after the People's Bank of China
indicated that it would shift its focus back to fighting
inflation from spurring growth.
The bad news on the economic front hardly affected credit,
though. Further evidence of a short squeeze was provided by the
China property sector. Bonds from the likes of Country Garden
hardly moved, closing at 101.00/102.00 even as press speculation
has increased that the central government will move to curb
property price appreciation again. "I wouldn't put much faith in
today's rally, this is just people trying to flatten out shorts
ahead of the long holiday," said a credit analyst in Singapore.
Another strategist in Hong Kong added that the lack of
supply in the past week has also helped support the market. "We
have finally had some room to breathe and spreads have tightened
a bit," he said. That helped Reliance recover a bit more ground
and its perpetual notes ended about 50ct higher in price quoted
at 96.00/97.00, still below the par reoffer, but much better
than the 94.50 low they hit last week. Agile's perps also gained
a bit of ground closing at 92.00/93.00, about USD1 stronger
compared to Monday.
Sovereign paper bounced as benchmarks in the region caught
up with the recent gains in the Treasury market and also as
investors removed some of their bearish bets. The Philippines
curve ended about USD1 higher in price terms on average, with
the 2037s closing at 113.25/113.65 and the 2021s wrapping at
109.85/110.15. Indonesia also gained and the 2022s closed at
103.15/103.65 while the 2042s finished at 108.25/108.75. CDS for
both sovereigns, though, ended unchanged as did the iTraxx IG
index at 116bp.