SINGAPORE, Nov 15 (IFR) - Buyers are becoming a rare breed
in the Asian credit markets and with accounts more shy about
committing new capital, spreads widened once again today. The
Asia iTraxx IG Series 18 ended the session 2bp-3bp wider quoted
at 126bp-127bp and most of the more liquid investment grade
benchmarks followed the same path.
However, the move in spreads was more a reflection of
rallying Treasuries and an unwillingness by Asian investors to
chase the gains in the US benchmark. "Prices on the bonds are
going up to follow Treasuries but no one wants to buy at these
levels, so spreads widen," summarized a trader in Singapore.
Indeed, since the start of November, the yield on the
10-year US Treasuries has already tightened more than 11bp.
Meanwhile, in the same period, the iTraxx has only widened by
about 7bp. So there clearly is some catching up to be done.
Much of the movement is only screen jockeying, argue
some. "Bid-ask spreads are widening, nobody wants to put out a
bit and risk being hit, so they just put crazy bids on the
screens," said the Singapore trader. The wider spread works
against clients buying as well, since they know that their exit
cost of the bonds is increasing.
Something bigger is also at play. Hedge funds have been
heard to be hitting the breaks, determined to lock in the gains
of the year. "I had a pretty good year, I am not going to be
buying risk right now," said a portfolio manager.
"Valuations have reached high levels and there has been a
lot of supply, so the balance has shifted" in the favour of
investors, said another portfolio manager. "People are starting
to feel that they have to price in some of the risk out there,
the fiscal cliff and the Chinese transition," for instance, he
The change has also been felt in the primary market, where
new issue premiums are widening and books are slimming down. All
three deals that priced yesterday were little more than twice
oversubscribed as opposed to the multi-billiion dollar demand
that deals were enjoying just three weeks ago.
The deals were also performing poorly. The new 2022 by China
Taiping was ending the day around 268bp/266bp, better than the
wide print of 270bp over seen earlier in the day but still wide
of the 260bp reoffer spread.
China Aoyuan's new 2017s also widened initially printing as
low as 95.00 but later recovered and were being quoted around
the reoffer level of 97.83.
Indonesia's new 10-year sukuk was also quoted below its par
reoffer level at 99.75/99/95, though it printed as low as 99.65
earlier in the day. Trading was slim on the credit, though,
given the Muslim new year holiday.
The sole outperformer was Kexim's new three-year, which
printed at 98bp over the 3-year US Treasuries, but was last
quoted at 102bp over the 2-year, which is equivalent to 94bp
over the 3-year US Treasuries.