ASIA CREDIT CLOSE: Investors get selective, make room for new issues
SINGAPORE, Oct 4 (IFR) - The first week of trading of the fourth quarter came to an end in Asia with a cautiously bullish tone. Traders said there was still better buying, despite the uncertain backdrop, but that accounts had started moving out of more-expensive bonds into cheaper ones.
"We have seen a lot of guys doing some relative value homework in a way we had not seen in a long time," said one trader in Singapore.
He gave as an example the 2020 bonds of China Overseas Land & Investment, which were seen as cheap and tightened steadily to end the week some 15bp narrower than where they started.
Institutional investors have also been freeing up cash for, what is clearly, a still hefty pipeline of new issues coming up. As they did so, real-money accounts also seemed to send a message to bankers that anything that was too tight would not be welcome. "If it is not a generous concession, it will get hit," said the trader.
Perhaps, the most extreme example of that was the new Tier 2 bond of ICBC Asia, which closed the Asian session bid at 336bp over 5-year Treasuries, having priced last night at 315bp.
Still, in spite of the bond's underperformance, one trader said that dealers did not suffer any related losses since the very first quotes of the day were already 20bp wide to reoffer.
"I got a call at 08:28 this morning asking me where I would bid the bonds and I already had them over 330bp," confided one trader in Singapore. "No one could get picked off on this one."
The same could not be said of the week's other new issues. Swire Pacific's new 2023 bonds, for instance, ended the week bid at 205bp, having priced on Wednesday at 195bp.
A lingering optimism, however, seemed to cap selling. "Whenever stuff goes too wide, it starts getting lifted," said the trader.
The sole outperformer was Korea Western Power, as its new 2018 bonds held on to early gains and closed the week quoted at 161bp/158bp, still tight to the 165bp reoffer spread. Traders, however, attributed that to the US bid. "You still see more liquidity in the Korean bonds during US hours," noted one trader.
On the CDS side, there was little to write home about because dealers were focused on cash. The Asia iTraxx IG Index ended about 1bp wider quoted at 150bp/153bp, its second day of minimal activity.
Going forward, traders will be watching the developments in Washington. While the market seems to be optimistic that the US will not default, as the October 17 deadline for the country to run out of funds approaches, volatility can be expected to increase. "It is almost surprising that there still is optimism as the deadline approaches," said one trader.
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