ASIA CREDIT CLOSE: Private banks start taking profits, real money still buying
SINGAPORE, Oct 18 (IFR) - The strong rally of the past few days lost a bit of steam today as private-banking accounts started to take profits on some of the bonds that have gained substantially this week.
The selling, however, was not strong enough to outweigh the buying from real money accounts, which continue to add risk.
"This market is telling me that real money was way underinvested and they are now being forced to deploy cash as quick as they can," said a trader in Singapore. "Otherwise, why would they be chasing bonds when the fund flows came in worse than last week?"
Indeed, emerging-market dedicated bond funds saw net outflows of USD536m in the week ended October 16, according to research firm EPFR. That compares to outflows of USD229m the week before.
Most of the redemptions were in local currency funds, though, which lost USD383m, with hard currency funds giving up USD110m.
Short-term Indian paper was among the most sold. That spilled over to Canara Bank's 2018s, issued just last week. The bond which ended yesterday at 355bp, or 30bp inside the reoffer spread, was last quoted at a mid-market level of 357bp today.
Most recent new issues were ending unchanged to 2bp wider. More liquid bonds, such as Sinopec's recent 3-tranche deal, were unchanged to 2bp wider as well. The same applied to the Asia ex-Japan iTraxx IG index, which closed the Asian session quoted at 131bp/133bp, or 1bp wide to yesterday's finish.
The sole outperformer was Korea Exchange Bank's new 10-year Basel II Tier 2 subordinated bond, which priced to yield 205bp over Treasuries and was last quoted at 180bp over.
While some accounts took profits on higher quality names, there also was some yield chasing as well. High-yield sovereigns such as Mongolia and Sri Lanka gained about USD1 in the day with the 2018s of the former ending the session at 94.00/95.00 and the latter's 2022s finishing at 96.00/97.00.
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