ASIA CREDIT CLOSE: Short-covering, technicals squeeze region tighter

Fri Nov 23, 2012 4:20am EST

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SINGAPORE, Nov 23 (IFR) - Asian credit ended the week tighter with some areas of high-grade showing very strong performance as investors put loose cash to work and covered shorts.

"I think a lot of accounts were caught wrong-footed going into year-end," said a trader in Singapore. "There was a lot of expectations of bad headlines but as that did not materialize people are realizing they should buy."

The sudden buying spree has been more focused on the names were investors saw there was more relative value. In that sense, there was a lot of demand for lower tier 2 bonds from Southeast Asia, especially from Singapore, which were perceived as cheap.

One trader said that the senior to subordinated ratio of these bonds was cheap relative to other financial institutions as well as the spread offered versus the ratings of the bonds. "There was also a technical overhang given the high amount issued this year in that space, but that seems to have been digested," said the trader.

Another case of relative value trade was the new Indonesia 2022 sukuks, which had dropped below par after being issued last week but recovered some USD2.5 in price terms since Wednesday and are closing the week quoted at 101.65/102.25.

The tightening was also happening on the derivative side, with the 5-year CDS for China, South Korea, Indonesia and Malaysia all going out some 5bp-6bp tighter in the week and near two-year lows.

This pushed the Asia iTraxx IG Series 18 index some 6bp tighter as it was closing at 114bp/116bp versus a 121bp mid market level on Monday.

Retail and private banking accounts continued to seek Baidu's new bonds as well and given the scarcity of the paper in Asia the spread on the name was tightened further.

The 2017s were ending the week quoted at a mid-market spread of 135bp over US Treasuries, 25bp tighter than the 160bp reoffer spread printed earlier this week. The 2022s were ending the week at 165bp after being priced at 185bp.

The new 2020 bonds of Studio City also were in high demand in Asia and were ending the quoted at 101.00/101.50 versus a par reoffer printed last Friday.

"Part of the move is that fast money is predicting well which bonds dealers are in search for and they are bidding that paper up," said one trader. Overall, the high-yield market closed the week better, with most of the property names quoted on average USD2 better.

Even the bonds of Soho China, which had become the favourite target of short-sellers in the past weeks, recovered some of the steep losses incurred since they priced at par in the beginning of the month. Both the 2017s and 2022s were being offered at 98.75 on Friday after having seen offers as low as 95.00 just last week.

Christopher.Langner@thomsonreuters.com

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