July 23, 2014 / 9:23 AM / in 3 years

ASIA CREDIT CLOSE: Huarong bonds outperform amid credit rally

3 Min Read

SINGAPORE, July 23 (IFR) - Asian financial markets made gains today on firmer sentiment, thanks to encouraging overnight US economic data on the inflation front, and yesterday's better-than-expected China MNI business sentiment index.

Credit markets shrugged off geopolitical tensions in the Middle East and Ukraine, with the iTraxx Asia IG Index pulling in 2bp and high-grade cash bonds tightening about 2bp-3bp.

The IG index was at 100bp/102bp and China's 5-year CDS came in 3bp as confidence of business leaders in the economy rose sharply to 58.2 in July from 55.0 in June.

"The market tone is good, well actually, it is better," said a Singapore-based trader. "We are seeing more demand on the China stuff, and most of it on the 10-year paper."

Private banks and retail buyers were in the markets covering positions, while real money accounts were largely absent.

Chinese 10-year investment-grade bonds, such as the 2024s from China Grid and those from property firms, tightened about 2bp-3bp on good demand. The 5-year Chinese paper not only saw less trade, but also tightened nominally about 2bp.

China Huarong's outstanding 2019s outperformed in the market as the bonds narrowed 5bp today to 225bp, although on the widest trade, the paper had tightened some 8bp.

The bonds rallied on news that the company is tying up a USD2bn stake sale to a group, including Malaysian sovereign wealth fund Khazanah Nasional, Goldman Sachs Group and Warburg Pincus.

The potentially strong shareholders will boost confidence in the state-owned "bad bank", tasked with handling bad assets from China's top four state lenders.

Investors are getting into the Huarong issue on anticipation that the bonds will tighten further. Huarong's 2019s are trading at a 20bp spread wider to Cinda Asset Management's 2019s, which looks cheap as analysts and traders expect the spread differential should only be about 10bp-15bp.

"I believe there is room for Huarong bonds to tighten a further 5bp, given the positive news of the new shareholders," said another trader.

kityin.boey@thomsonreuters.com

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