ASIA CREDIT CLOSE: Supply pick-up eyed amid sustained fund flows

HONG KONG, Sept 21 (IFR) - Asian credit markets turned cautious on Friday, with recently priced offerings showing mixed secondary performances amid a flurry of new issue announcements.

The iTraxx investment grade index series 18 for Asia ex-Japan is quoted at a spread of 133/135bp, marginally wider than Thursday, its first trading day. The now less-liquid series 17 is quoted at 111/113bp.

Bonds priced overnight are showing mixed trends as the build up in new issue pipeline distracted investors.

KEB 2015s were traded as tight as 125bp compared with the re-offer price of 155bp while CITIC Bank tier 2 bonds were last seen at 322/319bp after pricing at 325bp, but high yielder Fantasia was trading below re-offer at 98.75/99.25 as a host of new deals began crowing the pipeline.

"The final pricing was tighter than the initial guidance of low to mid 14, and so we saw some people flipping out of it with talk about some property names planning roadshows," said a high yield trader.

Still the tone remains moderately upbeat as the pace of inflows into risky assets has picked up and investors have showed willingness to move down the rating spectrum.

The market has been abuzz with talk that a property company is planning roadshows starting Monday in meetings arranged by BofA Merrill Lynch, HSBC and UBS.

CITIC's stellar performance also gave a boost to other long dated bank paper from China and Hong Kong with buying seen in BOC 2020s, which are at 195/193bp, ICBC 2020s at 190 and BEA 2020s, which are at 230/220.

Traders say gains for CITIC's new bonds would be limited after its pricing offered a mere 30bp pickup on the back of BEA 2022s.

One analyst said in a report the spread differential per rating notch is approximately 20bp for LT2 bonds and 10-15bp for senior bonds, making the bonds appear cheap relative to the Maybank 2022s.

Maybank 2022s continued its weak run widening out to 289bp from yesterday's 275/270bp. The bonds were sold earlier this month at 260bp.

Sovereign bonds got a leg up on the overnight rally in US Treasuries, which were lifted by growth concerns. Indonesia 2022s are at 104.50/105 and Philippines 2034s at 137/137.5 were trading 50cts higher. The 10-year Treasuries have corrected since then trading 3bp higher at 1.79% today.

The high yield sector was trading flat with Chinese property bonds holding on to recent gains. But given the busy week ahead for primary markets it is unlikely that some of them will remain at these elevated levels.

The single-B rated property sector has now regained par value for most names despite the headwinds facing the sector.

"The domestic economy is same and September sales are turning out to be weaker than August which is a surprise to most people," said a Hong Kong based analyst.

"People were expecting a silver September and a golden October. Fundamental outlook is still negative, we should not be having a party here."

Standard & Poor's believes the prospects of strong growth are limited despite improved property sales in the past two quarters, because of the weak economic outlook.

(umesh.desai@thomsonreuters.com)