ASIA CREDIT CLOSE: Better tone on short-covering
SINGAPORE, Sept 9 (IFR) - There was a better tone today in the Asian credit markets as fears of US Federal Reserve tapering rescinded after the release of a below-consensus 169,000 US August non-farm payroll number and a downward revision of the data for the previous months.
Still, it was a fairly sluggish session, with little in the way of flow and bid/offers on the wide side. The iTraxx IG index pulled in 5bp from Friday's closing level to 139bp/141bp.
The hunt for value has seen some strong performances today from the single-name CDS complex, adding to the gains of the last week or two.
The day's best performer in credit protection was 5-year State Bank of India, which was last 327.5bp/355bp, for a 12.5bp contraction on the day, building on a tightening of the same magnitude last week. Hutch CDS tightened around 5bp today as did Thailand, with the former having tightened 23bp last week and the latter 20bp.
"There's definitely a better mood right now, but any residual signs of US economic strength are going to push tapering back into the forefront again, and I think quite a lot of the price action in Asia credit can be attributed to short covering.
Also, the geopolitical risk stakes are rising on the Syria conflict and this could usher in volatility again," said a Singapore-based credit trader.
He said that, as Asian issuers were more willing to look to issue for fear that tapering would lead to higher funding costs, the prospect of a technical supply overhang could also pressure spreads in the medium term.
Today should see pricing from ZhengTong Auto Services and PTTEP, with the outcomes likely to be a gauge of sentiment in what is anything other than a fully normalised market.
ZhengTong will benefit from a BOC standby letter of credit, while PTTEP has strong name recognition. Still, the deals' secondary market performance will be watched closely provided they price today.