ASIA CREDIT CLOSE: Political tensions weigh on Asian credits

Thu Aug 7, 2014 5:49am EDT

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SINGAPORE, Aug 7 (IFR) - Asian high-yield credits were weighed down on growing concerns over the escalating political rhetoric between Russia and the West. Bonds with exposure to US investors have been hit more badly as they have been more unnerved by the political tension and are reducing risk exposures.

"High-yield names are better offered in the market now, and low-beta credits, involving US investors, are seeing some profit-taking given that they have been underperforming for a while," said one high-yield trader.

"There is a move back to short-dated assets as political fears drive investors to safe-haven trades and dealers are cutting back inventories, but the liquidity is so thin that any movement will exaggerate prices," said the trader.

The move away from risky assets has hurt Chinese and Indonesian high-yield corporate names, although Indian high-yield credits were also not spared.

Chinese Double B credits have dropped one point over the last few days as valuations of such paper are looking very tight. CoGard bonds, which had rallied two weeks ago on a rating upgrade, have underperformed over the past couple of days, falling half to three-quarters of a point. The bonds were broadly unchanged today. The 2021s were quoted at 98.25/98.75, while the 2023s were traded to 97.00/97.50.

However, KWG 2019s were holding up well above water. The bonds, which traded to as high as 101 soon after they priced at par last week, were quoted at 100.50/100.75.

Among Indian names, Greenko's bond stood out for its underperformance. The 2019s, priced at a yield of 8.0%, have widened to just over 9.0%, close to the top end of a fair yield value range that an analyst had earlier projected.

Traders said there was no specific catalyst for the decline, but pointed to Greenko's short track record and involvement in the renewable energy industry - an area not familiar to investors.

"There is little private-bank support for this name and, with prices dropping, investors are cutting losses. That undermines whatever confidence is left," said one Singapore-based trader.

Tata Steel's 2024s have also eased to 98.125/98.625 while Rolta's 2019s, priced at 99.505, have sunk below par after rallying to 102 a fortnight ago.

Meanwhile, investment-grade cash bonds were not faring any better. Kexim's newly priced 2019s rebounded marginally to 78bp/76bp over US Treasuries today, after widening some 7bp from reoffer spread to 79bp yesterday. The 2026s widened further to 95bp/93bp, out from yesterday's 90bp. China Merchant Bank's 2019s were pulled out further to 170bp/168bp today.

kityin.boey@thomsonreuters.com

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