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ASIA CREDIT CLOSE: Technical factors supportive ahead of ECB, BOJ

Source : REUTERS
Last Updated: Fri, Oct 05, 2012 18:42 hrs

HONG KONG, Oct 4 (IFR) - Asian credit spreads continued to grind tighter on the back of strong technicals despite investors turning slightly more cautious ahead of central bank meetings in Europe and Japan.

The iTraxx investment grade index series 18 for Asia ex-Japan pushed in to 129/131bp from Wednesday's 131/133bp, with cash bonds outperforming CDS marginally with no major supplies in store after a recent spike.

That suited IRFC fine as its newly sold bonds performed strongly in their secondary debut. The 2017s tightened 13bp to 267bp over US Treasuries after pricing at 280bp, as investors still saw the investment grade quasi-sovereign offering relatively high yield.

Indeed, recently minted Indian bonds are well sought after as investors are also bidding up Exim Bank India's 2017s to around 260bp and State Bank of India to around 296/286bp.

"Primary markets are repricing secondary levels these days in certain segments, as poor liquidity means price discovery is getting complicated in secondary - especially for segments where there has been substantial positive news flow," said Krishna Hegde, a strategist with Barclays.

"When you get new deals, you get pure price discovery because of a more broadbased participation compared with secondary. As a result, primary markets become a better way to discover the right clearing price."

Secondary markets are witnessing a slight paper squeeze despite the record issuance this year as money continues to pour into higher-yielding, emerging markets in a low rate environment.

This is helping recent laggards catch up as the technical bid keeps getting stronger, unless it gets derailed by two factors - the European tail risk, which has not gone away completely, or a supply deluge.

Maybank 2022s are trading at 275bp, still wide after a 260bp print but rebounded from a toppish 300bp just a week ago.

Siam Commercial Bank 2017s, which were reopened last month at 215bp, are now trading tighter at 213bp from last week's wide of 220bp.

PTT Global Chemicals 2022s have performed well, now at 227bp after pricing at 260bp in mid-September. It was trading at around 235bp last week.

The front-end of the Korean and Indian space has outperformed in recent weeks as scarce supply and demand for short-dated paper pushed down yields.

Hana 2015s, KEB 2015s and Woori 2015s have tightened 10-15bp and bonds from IOC and Bank of India 2015s moved in by about 25bp in the past two weeks.

"Its a sweet spot for banks which are flushed with money. Rates are on hold for longer so any spread is a real pick-up for them," said one trader who added there was very little supply in the 3-year maturity bracket this year, after relatively low volumes in late-2009 and early-2010.

"All that is combining to drive demand for the front-end paper," he said.

The paper chase is making pricing conditions even more difficult in the high yield sector, where a lack of quality supply is pushing investors to push yields further down in the benchmark names.

"There is a lot of money and not many assets to buy - just a grab for yield," said a Hong Kong-based chief trader at a European Bank.

"It is a heavily bifurcated market - stuff that is unloved remains unloved and higher quality paper is literally impossible to find."

Among benchmark names, Longfor 2016s are trading at 109.875/110.875 while Agile 2017s are at 105.75/106.75. Reflecting the strength of the technical bid, Guangzhou 2016s are now trading at 104.125/104.875, compared with its August reoffer of 97.061.

The technical support is pushing up some recently beaten down names, with Winsway 2016s catching bids at 76.5/78 from yesterday's 70/72, as some short-covering and retail interest helped support.

Another bond that saw short-covering was Bumi 2017s which is are now trading at 80/81.75, steady from overnight levels and much higher than last week's low of 78/79, as investors await the next move from the debt-laden cash strapped company.

Fund injection via asset sales and expectations of improvement in coal prices are being cited as reasons behind this recovery.

(umesh.desai@thomsonreuters.com)



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