ASIA CREDIT CLOSE: Investment-grade bonds reverse early gains

Tue Feb 25, 2014 4:43am EST

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SINGAPORE, Feb 25 (IFR) - Investment-grade bonds in Asia ended the session today unchanged to slightly wider as investors reversed course and sold paper that had started the day tighter.

Bonds of Chinese banks, for instance, started the session 1bp-2bp tighter after an overnight rally in the US equity markets, but gave back the gains after ICBC International announced a new 3-year issue and amid general fears related to the Chinese currency.

The renminbi has dropped 0.76% in the past week in one of its sharpest declines of all time.

Bond investors in Asia felt that the move was mostly a People's Bank of China tactic to force people to unwind some long bets on the Chinese currency.

"The PBoC is trying to give some people a bloody nose, that's all," said a portfolio manager in Singapore.

However, the move, added to another day of volatility in the Chinese stock market and saw investors take profits at least in any Chinese bonds that rallied in early trading.

The Shanghai Stock Exchange Composite Index was down 2.04% today and has lost 5.51% since the past week. The property sub-index of the exchange is faring worse, falling 2.12% today and 8.3% in the past week.

Bonds of property companies were resilient relative to their equity counterparts. Most ended virtually unchanged today, with some selling in Evergrande and Greentown, which both finished roughly 25 cents weaker in price terms across the curve.

The 2018s of China Vanke also were hit and ended the session wider, quoted at 335bp/330bp, some 10bp wide to where they were last Friday.

Investors were selling paper of these companies more than others because they have traditionally relied more heavily on trust financing and they were more aggressive about lowering prices in the last property price downturn, according to one analyst.

Otherwise, there was support for investment-grade with the recently issued bonds of New World Development and Sun Hung Kai outperforming the market to close 2bp-3bp tighter.

The CDS side was steadier today, with Chinese 5-year protection ending unchanged and the Asia ex-Japan iTraxx IG index last quoted at 135bp, 1bp wider in the session.

Christopher.Langner@thomsonreuters.com

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