ASIA CREDIT CLOSE: Investors pare risk ahead of holiday

Wed Jan 29, 2014 11:48pm EST

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SINGAPORE, Jan 30 (IFR) - Investors were still selling bonds today ahead of the long weekend in Asia for the Lunar New Year holidays. Spreads for some of the more liquid bonds, such as those from Chinese state-owned enterprises and banks, were 5bp to 10bp wider as the market neared an early close.

"We are seeing some pre-holiday better selling, despite higher levels," noted a trader in Singapore.

Part of the selling interest was due to higher cash prices after 10-year US Treasuries tightened 10bp overnight following the Fed Reserve's decision to trim another USD10bn off its bond-purchase programme.

Investors, therefore, were taking profits on their high-grade bonds on expectations that the yields on the US benchmark would soon resume their rising trend.

This partly explained the strongest widening of Chinese among the bonds traded today. "These are just more liquid, so it is easier to catch a bid on them," said the trader.

There was some selling in the less liquid bonds from Filipino corporate issuers, which the trader attributed to a couple of real money accounts paring exposure to the Philippines.

Indian bank paper widened 2bp-4bp, but still outperformed the more liquid Chinese names, while South Korean corporate and financial bonds were again the outperformers, ending the session either unchanged or up to 2bp wider.

South Korea has enjoyed strong support from Western investors, which allowed it to buck the recent selloff, making the country the best performer in the region in the past week.

Liquidity was very thin, though, due to the approaching holiday and the short session. Next week, traders expect there will also be very little liquidity as China will be closed for most of the week.

This may translate to a bit of volatility as small trades are likely to cause large swings in prices and spreads. "I expect the market to be gappy next week," said the trader.

Christopher.Langner@thomsonreuters.com

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