ASIA CREDIT CLOSE: Dealers add risk, shorts cover, clients take profits
SINGAPORE, Sept 19 (IFR) - Asian credit markets continued the strong rally seen yesterday in the US following the Fed decision to continue monthly purchases of USD85bn of Treasuries and mortgage-backed securities.
Overnight, the yield on the 10-year US Treasury dropped 15bp after Fed Chairman Ben Bernanke spoke and Asian dollar bonds not only followed but their spreads tightened 5bp-10bp more today.
"I saw very strong buying in the morning in size," a one trader in Hong Kong said.
But the trader acknowledged that while clients at first bought bonds, most of the rally in Asia was prompted by short covering. Evidence of that was in the sharp move by Indian bonds, which outperformed the market, tightening up to 20bp at one point.
"The most squeezed bonds did better than the rest," a trader in Singapore said.
Brokers and dealers were adding risk and duration and lifting offers in the process, which prompted spreads for investment-grade bonds to tighten 5bp-10bp, the trader added.
The higher-beta bonds, therefore, benefited the most. The best example of this move was in longer-dated Indonesian bonds, with the 2043s of the sovereign gaining almost USD5 in price terms to close at 84.50 mid-market.
High-yield also rallied strong in the morning with the first trades coming in up to USD6 higher in price terms.
As much of the move was prompted by dealers, private banks and real money accounts were heard taking profits, though some end-investors were buying too.
The profit-taking accelerated after London's market opened, and high-yield bonds settled only some USD2-USD3 higher. The new 2019 bonds of Chinese property developer Greentown, for instance, ended the day quoted at 102.00, having priced at par on Monday.
The only squeeze that was not reversed was on the Asia iTraxx IG index, which closed 115bp-117bp, almost 15bp tighter than yesterday. That, however, served as further proof that much of the move so far has been prompted by fast money.