ASIA CREDIT CLOSE: QE3 fully factored, new issue rush watched
HONG KONG, Sept 13 (IFR) - Asian credit spreads backed up marginally ahead of the US Federal Reserve's statement but new bonds outperformed CDS despite the swelling flow of new issues. That surely indicates the sheer volume of cash on the sidelines waiting to be put to work.
The iTraxx Asia ex-Japan investment grade index series 17 was 1-2bp wider at 125/127bp after hitting yesterday its lowest since August 2011. CDS spreads are off by 1-2bp with the China-South Korea gap narrowing by a basis point to 4bp.
It was a different story in bonds. Thailand's PTT Global Chemical was the outperformer by a long shot with its new 2022s trading at 147/145bp - much tighter than the re-offer spread of 160bp.
Hong Kong developer Sino-Land saw a 5bp tightening on the shorter dated 2017s which are now around 257/255bp. Kaisa Group, the one high-yield name that priced overnight, was bid up at 101.75 after pricing at par.
All three deals received solid responses with PTT's USD1bn issue logging USD11bn, which some traders said resulted in spread tightening in the grey market even before official trading started.
"It looks like there were underallocations as people seemed to have underestimated what the final orderbook will look like," said one sales trader."Trading liquidity in Thai paper tends to run dry quickly as it lands in hold-to-maturity hands very fast."
Kaisa's USD3.9bn orders for its small USD250m 5NC3 deal ensured a solid start for the bond, which traded as high as 102-102.25 in early deals.
The bond, priced at par, was last seen at around 101.75, as analysts struggled to pin a number on the additional yield the new bond should pay over the existing 2015s and relative to the recently sold Road King bonds, which are rated higher.
Sino-Land was strong, although it was not as actively traded since the USD3.5bn book ensured there was relatively generous allocation among the investors.
"All three deals performed well, although we saw profit-taking in the morning. We expect spreads to tighten going forward but not at the pace we have seen in the past couple of weeks," said a Singapore-based trader.
"Supply is a risk but the total return guys need to put proceeds to work and the backing up of Treasury yields is making it favourable for these guys to buy."
Clifford Lau, Head of Asia Pacific Fixed Income at Threadneedle said new issues would remain popular in the likely event the Fed launches quantitative easing and not necessarily for new issue premiums.
"What you get is not necessarily cheap valuation but rather the good liquidity offered by new issues and this facilitates best when you are trying to position yourself as "risk-on"."
The Asian G3 bond tally now stands at USD96.8bn and with names from the banking sector like Kasikornbank, Maybank, Trade and Development Bank of Mongolia and Bangkok Bank in various stages of issues, it is a matter of time when the three digit figure will be breached.
Maybank, in the market with a 10NC5 bond subordinated issue that has already seen a book of over USD3bn, saw a 1-2bp widening in its existing 2017 seniors trading at 160bp. Bankers cautioned against any anticipatory trades as the recent PTT deal showed when book size potential was underestimated.
Bonds from Mongolia remained firm to steady with the new Trade and Development Bank guidance moved to 8.75% (+/-12.5bp) from high 8%. Mongolia Mining traded up, last seen at 102. The Development Bank of Mongolia was steady at 102.75/103.75.
However, sovereign paper was slightly weaker on the back of the marginally lower US Treasuries in the morning, with the selling focused on the long end with the belly of the curve well supported.
Philippines 2034s and 2037s are off by an eighth to a quarter while the Indonesian 2042s are lower by half a point.
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